We have come to the grudging conclusion that the Banking industry, of which we have lately been rabid supporters, will do anything they can to evade the most basic of responsibilities for what has been five years of wholesale mismanagement. The news that the American Bankers Association is one of the major forces behind the recent push for short-sale curbs makes us wonder if the clamor to find scapegoats, any scapegoats, to cover misdeeds and dilute the shellacking stock and incentive options have taken over the last 18 months.
The proposals were largely welcomed by banks, which had been pleading with the SEC to rein in short selling. The American Bankers Association called Wednesday’s move “balanced and reasoned” and predicted action will limit “downward stock spirals and restore investor confidence.”
This, in combination with the totally unfounded and baseless rumors that certain members of the Treasury have been less than private with their personal (and one assumes professional) distaste for short sellers, and the various shenanigans designed to prop up bank share prices start to look like state sponsored short squeezes.
In this connection, we understand that it is popular at present to claim that trending away from mark-to-market accounting will have little real effect, but this attitude puzzles us. First, if it means so little, why make the change away from what is a solid bit of conservative accounting? Second, real effect or not, how wise can it be to sanction mythology pricing at the expense of even some real data extrapolation? Let’s just face it. Anyone who tells you that basing pricing on current bid-ask data is wrong because the market is “illiquid” or “panicked” or “at fire sale levels” is merely substituting their own future view of the likelihood and size of future cash flows for the market’s. We think this sort of conceit should be viewed with suspicion as it is based on the prospect that all asset prices must rise eternally, the same self-serving conceit that demonizes short sellers.
If the combination of these moves seems to suggest to you that the market is increasingly becoming a side-attraction ride at Imaginationland, you aren’t alone. This gives the lie to the American Bankers Association’s claim that short seller curbs will “restore investor confidence,” unless they mean “investor confidence in the continuation of the present sham.”
Wrangling Ahead on Short-Sale Plans [The Wall Street Journal]
Related: “Don’t Short Me Bro!” Mug [Dealbreaker Swag]
I-mag-in-aaaaa-tion, I-mag-i-na-tioooon, Imagi-naaaat-ion
Short sellers are the ManBearPig of the financial world
so i have this straight:
-banks can game earnings through the back door by AIG continuing to get bailed out
-banks can mark loans to fantasy land values
-financial short sellers will be tarred and feathered on Pine Street
if we all know the game is rigged why not go all in on XLF?
I’m going to refuse to mark-to-market when I next put an insurance claim in -that old TV that got stolen was worth $75,000. You know that 8 year old TV’s are pretty illiquid and the market is thin so while we’re all making shit up let’s just go to town.
I’m going to refuse to mark-to-market when I next put an insurance claim in -that old TV that got stolen was worth $75,000. You know that 8 year old TV’s are pretty illiquid and the market is thin so while we’re all making shit up let’s just go to town.
“present Sham” then I saw SHAM WOW AMERICA! If feel so used, but deep down, I kind of like it
Preaching to the choir.
Only idiots would invest in banks etc. The worst is yet to come. And if I know that it’s scary.
This is one of your very best posts.
The thing is, the uptick (or similar) rule will have no effect on the decline of the stock. The world is swimming in research that shows that stock prices go down because longs sell, not because shorts do. Shorts account for too little of the trading volume even when there’s heavy shorting.
The only thing the uptick (or similar) rule does is dictate WHO can sell and WHEN they can sell.
In other words, the SEC will be picking the winners and losers in the stock market. Retail traders will be the losers. Market makers will win. Isn’t the SEC supposed to be protecting Joe Blow from the MMs?
EP, by the far the best I have seen by you. Bravo!
So what’s next? No sell stops? No uncovered puts? Pakistan, here we come!
EP,
Well done. Snaps.
Thanks EP.
Check out the magnitude of “possible diaster”. As noted by ZH
http://zerohedge.blogspot.com/2009/04/bail-out-for-dummies-part-1.html
This is an excerpt from the whole post:
The US Banking System’s Terrifying Balance Sheet
This is a spectacularly good piece of information design, from Tyler at Zero Hedge. It repays a lot of looking at, and manages to encapsulate both the scale of the US banking system and the scale of the solutions which have been announced or implemented to date.
On the asset side of the US banking system’s balance sheet, the $4.8 trillion in mortgages is a problem — but there’s another $3.1 trillion in bank loans and consumer credit which is looking increasingly shaky. Against that there’s less than $1 trillion in common stock, supporting over $12 trillion in liabilities.
Meanwhile, Tyler has neatly lined up the government’s support programs along with the relevant parts of the right-hand side of the banking system’s balance sheet. Add them all up, and they come to just over $9 trillion, or 67% of the banking system’s total assets. It’s an absolutely astonishing amount of support, and it brings home the scale of the problem facing the government.
In a nutshell, the problem is the classic one: on the left-hand side nothing is right, and on the right-hand side nothing is left, at least absent government intervention. Says Tyler:
As the government has the best information about the true sad state of affairs, it is likely that as more and more information about the weakness of the financial system comes to light, more of these support guarantees will become utilized to their full extent. This also means that the asset side of the balance sheet is potentially “inflated” by almost 75% and the net result could be the most dramatic collapse in a banking system’s assets in recorded history as over $8 trillion in “assets” are reevaluated.
This doesn’t need to be probable to be terrifying: it just needs to be possible. And Tyler’s point is that the government has put all of these programs in place precisely because it’s possible. So: fear is entirely rational here.
Well said, EP:
“This gives the lie to the American Bankers Association’s claim that short seller curbs will ‘restore investor confidence,’ unless they mean ‘investor confidence in the continuation of the present sham.’”
This really is a fantastic post EP.
mark to market is a tyrannical, anti-free market accounting rule. so we are moving in the right direction, even if in the short term it will allow some bank execs to rack up big gains before they ditch their companies in a great ball of fire.