So Europe’s going to ban short selling. Or not, whatever. Or, sure, yes. Since last time this happened it did such a great job of propping up equity prices.

But maybe propping up equity prices isn’t the point? It’s not hard to find European (or American) politicians who just think that short selling is immoral and should be punished by public flogging, whatever it does to equity prices. And given the likely explanation for the recent European financials selloff – worries that banks’ balance sheets are stuffed with Italian government debt – maybe there’s something else going on here. Here’s a comment that’s sure to get some regulators’ blood boiling:

“People are shorting banks as a way of shorting sovereign debt,” Tom Vosa, head of markets economics, Europe at National Australia Bank, told CNBC Thursday. “What we are really seeing is the markets deciding they don’t like the fiscal position in Europe.”

As FT Alphaville points out today, CDS spreads on European sovereigns are widening even as bond yields are rallying – because of technical factors that can be summed up as “regulatory interference.” (ECB is buying the bonds and pushing yields down, while the CDS market is thinly traded given speculation about bans and such.) If you want to bet on European government credit declines, it’s becoming increasingly difficult to either short bonds or buy CDS – so you’re left shorting the stock of the banks that own the most of it.

Of course banning short sales of banks probably wouldn’t do much to prop up Italy – but it would make it more painful to express a negative view on Italian debt. Which seems to be what European regulators are after.

56 comments (hidden to protect delicate sensibilities)
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Comments (56)

  1. Posted by Guest | August 11, 2011 at 1:25 PM

    As soon as I read the title I knew it was going to be a Matt post…

  2. Posted by Shawn | August 11, 2011 at 1:34 PM

    They were supposed to have some dude from France on CNBC this morning talking about SocGen, but the anchor said the regulator banned him from talking.

  3. Posted by geoffgeoffgeoff | August 11, 2011 at 1:36 PM

    You forgot to sign, "Deductive Reasoning Quant."

  4. Posted by guest | August 11, 2011 at 1:43 PM

    I think it is a good idea. That way the politician can have some vacation time. Why should Obama be the only one to have fun at Martha Vineyard

  5. Posted by minus 1 | August 11, 2011 at 1:46 PM

    I like how Matt got people to read both of his articles today "of propping up equity prices." Smooth move Matt, smooth.

  6. Posted by Guest | August 11, 2011 at 1:47 PM

    They were supposed to have some "short" dude from France on CNBC this morning talking about SocGen, but the anchor said the regulator banned him from talking. OIHNPWT

  7. Posted by Sylent | August 11, 2011 at 1:50 PM

    Why should he stick around when he can't vote nothing into law, when Congress took off since last week. Just saying…

    — Guy who's sick of blaming Obama for my mom's farts

  8. Posted by deal_mkr | August 11, 2011 at 1:54 PM

    if i wanted to read zerohedge i would go to zerohedge….

  9. Posted by trojan_ | August 11, 2011 at 2:02 PM

    "Markets instead prefer the reverse cowgirl position in Southeast Asia," Vosa continued.

  10. Posted by Name | August 11, 2011 at 2:27 PM

    I wanted to comment on the intrinsic difficulty of voting nothing into law, but paused for a moment in deference to your tacit jab at domestic legislative incompetence in general.

  11. Posted by Guest | August 11, 2011 at 2:30 PM

    You don't real ZH much do you.

  12. Posted by Bandersnatch | August 11, 2011 at 2:57 PM

    Are you channeling Equity Private? And in particular, the Equity Private that had stopped trying to be clever and funny.

  13. Posted by Guest | August 11, 2011 at 3:45 PM

    I knew it was a Matt post even before I read the title

    -Gartman Quant

  14. Posted by PermaGuestII | August 11, 2011 at 4:04 PM

    There aren't enough random digressions on astrophysics and/or the doctrines of Ayn Rand.

  15. Posted by Guest | August 11, 2011 at 4:34 PM

    Or Black Swan-esque scenes about how badly she wanted to work for a GP

  16. Posted by Guest | August 11, 2011 at 4:35 PM

    Matt, it's Europe. Everyone takes off the whole summer anyway.

  17. Posted by NowOnePerson | August 12, 2011 at 10:12 AM

    As soon as I finished reading the post in less than 5 minutes, I thought it had been mistakenly labelled a Matt post…

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