Governments almost always believe that market has been the culprit for most of the ills in society. And that when push comes to shove, their instinct is to resort to palliatives: throw money at the problem, regulate or tax.
Since the markets has not stabilized even after the Bazooka or Shock and Awe monster $1 trillion bailout, of the not only of Greece, but the entire Euro Union, last night, Germany banned short selling in European bonds and credit default swap and shares of select industries in the stock market.
This from Bloomberg,
``Germany prohibited naked short- selling and speculating on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking anxiety among investors about increasing government regulation.
``The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said late yesterday in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said."
The problem is that these bans introduces more risks by not allowing the markets to reflect on the fundamentals via price signals.
Besides, excessive government spending financed by debt coupled with insufficient revenue, which is the source of the Euro's problem, hasn't been caused by the markets but by extant policies.
So the German government is simply looking for another scapegoat.
While the stockmarkets in Europe did react positively, perhaps due to some short covering on the issues affected by the ban, US stocks got slammed and the Euro cratered!
Regulators don't seem to realize that banning naked shorts hardly produces the intended effects and instead creates an aura of heightened uncertainty.
So aside from regulatory risks, these actions may suggests of an act of desperation or act of concealment of problems.
At the near climax of the Lehman episode in 2008, the US government reacted the same way, by instituting a ban on naked short selling in mid September as Lehman filed for bankruptcy.
And instead of the consequences going in the way of the regulators, the US markets collapsed! See below...
The blue arrows mark the time where naked short bans had been imposed.
Japan followed in November of the same year (above window), yet the results were the same...a failure to stem the hemorrhage.
The more governments manipulate the markets, the unstable they will be.
Since the markets has not stabilized even after the Bazooka or Shock and Awe monster $1 trillion bailout, of the not only of Greece, but the entire Euro Union, last night, Germany banned short selling in European bonds and credit default swap and shares of select industries in the stock market.
This from Bloomberg,
``Germany prohibited naked short- selling and speculating on European government bonds with credit-default swaps in an effort to calm the region’s financial markets, sparking anxiety among investors about increasing government regulation.
``The ban, which took effect at midnight and lasts until March 31, 2011, also applies to the shares of 10 banks and insurers, German financial regulator BaFin said late yesterday in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, BaFin said."
The problem is that these bans introduces more risks by not allowing the markets to reflect on the fundamentals via price signals.
Besides, excessive government spending financed by debt coupled with insufficient revenue, which is the source of the Euro's problem, hasn't been caused by the markets but by extant policies.
So the German government is simply looking for another scapegoat.
While the stockmarkets in Europe did react positively, perhaps due to some short covering on the issues affected by the ban, US stocks got slammed and the Euro cratered!
Regulators don't seem to realize that banning naked shorts hardly produces the intended effects and instead creates an aura of heightened uncertainty.So aside from regulatory risks, these actions may suggests of an act of desperation or act of concealment of problems.
At the near climax of the Lehman episode in 2008, the US government reacted the same way, by instituting a ban on naked short selling in mid September as Lehman filed for bankruptcy.
And instead of the consequences going in the way of the regulators, the US markets collapsed! See below...
The blue arrows mark the time where naked short bans had been imposed.
Japan followed in November of the same year (above window), yet the results were the same...a failure to stem the hemorrhage.
The more governments manipulate the markets, the unstable they will be.
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