Comments on: Short Selling Ban: Explaining Why this Won’t Help Wall Street http://www.babeled.com/2008/09/23/short-selling-ban-explaining-why-this-wont-help-wall-street/ Six guys who have never been in your kitchen. Thu, 18 Mar 2010 14:50:46 -0700 hourly 1 By: Jason Morgan http://www.babeled.com/2008/09/23/short-selling-ban-explaining-why-this-wont-help-wall-street/#comment-12511 Jason Morgan Mon, 29 Sep 2008 02:34:15 +0000 http://www.babeled.com/?p=1078#comment-12511 It does happen, but typically the lender is just putting a hedge on what they think a potential loss could be on the stock they are lending. The lender basically accepts the fact that there will be a loss in the hopes that they can average down their total cost of purchasing the stock, thus being able to earn a return at a lower price point. Sorry, that may not help at all, but you asked a deep question that deserved a hefty response. It does happen, but typically the lender is just putting a hedge on what they think a potential loss could be on the stock they are lending. The lender basically accepts the fact that there will be a loss in the hopes that they can average down their total cost of purchasing the stock, thus being able to earn a return at a lower price point. Sorry, that may not help at all, but you asked a deep question that deserved a hefty response.

]]> By: U.S. Economy in Crisis Explained Part 1 of 3: How it Began | Babeled http://www.babeled.com/2008/09/23/short-selling-ban-explaining-why-this-wont-help-wall-street/#comment-12472 U.S. Economy in Crisis Explained Part 1 of 3: How it Began | Babeled Sun, 28 Sep 2008 04:14:16 +0000 http://www.babeled.com/?p=1078#comment-12472 [...] Freddie Mac, the Bank of America acquisition of Merrill Lynch through relaxed FTC regulations, the temporary ban on short selling certain financial sector stocks, the Lehman Brother’s deal, and inexorably [...] [...] Freddie Mac, the Bank of America acquisition of Merrill Lynch through relaxed FTC regulations, the temporary ban on short selling certain financial sector stocks, the Lehman Brother’s deal, and inexorably [...]

]]> By: Greg Molyneux http://www.babeled.com/2008/09/23/short-selling-ban-explaining-why-this-wont-help-wall-street/#comment-12349 Greg Molyneux Thu, 25 Sep 2008 20:55:34 +0000 http://www.babeled.com/?p=1078#comment-12349 Are lender's more encouraged to sell (or lend) to a prospective short in a market crunch such as this because there has been a drying up of market liquidity? Is the lender's need for cash a reason behind a market that is conducive for short selling? Are lender’s more encouraged to sell (or lend) to a prospective short in a market crunch such as this because there has been a drying up of market liquidity?

Is the lender’s need for cash a reason behind a market that is conducive for short selling?

]]> By: Jack Gamble - Man Overboard http://www.babeled.com/2008/09/23/short-selling-ban-explaining-why-this-wont-help-wall-street/#comment-12273 Jack Gamble - Man Overboard Wed, 24 Sep 2008 03:12:38 +0000 http://www.babeled.com/?p=1078#comment-12273 Great post Jay. I have always been both amazed and confused by short-selling. In the case of the current situation, there is one critical difference here. I 100% agree that Short selling did not directly influence the entire stock market or single handedly cause this crisis. Only the few financial institutions and the mortgage giants where directly hit by it - which snowballed into market volatility across the board. A huge short position combined with the public concern over the credit crisis fermented into a public panic over the entire sector. At a time when these large companies needed credit most to cover poor mortgage investments, the share prices of the companies tanked thus removing any chance of borrowing the capital needed to cover the bad debt. The result was tax payers picking up the tab before the fire could spread to other sectors. Great post Jay.

I have always been both amazed and confused by short-selling.

In the case of the current situation, there is one critical difference here.

I 100% agree that Short selling did not directly influence the entire stock market or single handedly cause this crisis. Only the few financial institutions and the mortgage giants where directly hit by it – which snowballed into market volatility across the board.

A huge short position combined with the public concern over the credit crisis fermented into a public panic over the entire sector. At a time when these large companies needed credit most to cover poor mortgage investments, the share prices of the companies tanked thus removing any chance of borrowing the capital needed to cover the bad debt.

The result was tax payers picking up the tab before the fire could spread to other sectors.

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