Re: Ban on short selling killing liquidity

On Oct 9, 8:51 am, "The Cheesehusker, Trade Warrior"
<Iamtj4l...@xxxxxxxxx> wrote:
On Oct 9, 7:39 am, Jaybyrd <jaybyrdb...@xxxxxxxxx> wrote:



On Oct 9, 8:12 am, "Jefferson N. Glapski"

<jeffersonWE...@xxxxxxxxxxxxxxxxxxxx> wrote:
Way to go, you igrnorant economic illiterates:

http://www.bloomberg.com/apps/news?pid=20601110&sid=aNklLVEVFejc

``We're not in a credit crunch, we're in a credit halt,'' Busson said
yesterday in an interview in London. ``You take short sellers out and you
take out 30 to 40 percent of the liquidity. It creates a vacuum. They are an
essential liquidity provider.''

your going to have to help me understand this one. My understanding
of short selling is that it rewards those that speculate on a
downturning market. Doesn't that go against the old "sell high buy
low" rule and thus go against capitalism?

Assuming you meant "buy low sell high"?

Regardless - back up for a second - why do you "buy" a stock? B/c you
see perceived value and that it'll either go up - or provide a
dividend stream such that any downturn in price will still be
compensated - right? IOW, you buy b/c you think the price is
UNDERvalued and in time, it'll be worth more.

Short sellers do exactly the opposite - they see a security which is
OVERvalued for whatever reason - and sell now in anticipation of
buying back the share later. They see a Fannie Mae cooking books and
realize that they're fraudulent and the share price is too high.

Where the liquidity comes in, is that shorts sometimes run as high as
40% of the longs - and when the stock goes down, are buyers - along
with those who are long buyers. By taking the shorts out of the
market, you remove a pool of buyers from supporting the stock price -
the only buyers would be those who want to go long - and right now,
those are few and far between.

Shorts perform a very important role in the market in terms of price
transparancy - b/c of the greater risk value of their trades, they
tend to concentrate in stocks w/ serious problems - see Enron or Bear
or Shearson for example - and it is thru their actions that the truth
comes to light - this in addition to providing further liquidity by
taking the opposite side of the trade.

bear with me please, I'm a chem/bio major. I thought the problem was
that the short-stock transactions are done without the actual owning
of the stock. That the person speculating never really owned the
stock but "borrowed" it for a time. Since the ownership is funded
though margin doesn't that put a strain on banks and increase
volatility?
.

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