[enjoy this video from DOA as a fun interpretation of the sad story below]
I'm beginning to study the intricacies of the stock market. As we already know, Crash Gordon Brown has brought us here. What do we do now?
First issue: short selling
IT SHOULD BE BANNED BECAUSE IT
LOOKS,
WALKS &
QUACKS LIKE THE FRAUD THAT IT IS.
Here's the story: Crazy, greedy stock brokers find someone who will, 'in theory', 'lend' them a stock that belongs to a third party (unbeknownst to them). For example. JPMorgan brokerage (now dead, I assume, RIPieces) would 'borrow' a stock which they are sitting on for someone else (I know, it sounds crazy already). JPM lends it to Shorty (for a fee) and promises to buy it back from Shorty at some future point. In the meantime, Shorty does what he can to start rumours which will cause the stock to fall (schoolyard tricks). He does this because if its price falls, he makes a profit when he sells it back to JPM. It's a shell game.
Make it illegal for traders to play these theoretical games on the real market. Shift them to Ladbrokes who will take bets on anything, like 'when will it snow next in London'.
First problem: They're making money from a completely fictitious event without possession of the actual stock. It's a magic trick designed to make some suits rich, but it has cancerous effects on markets especially when they're in the dumps.
Second problem: These fictitious deals have been notorious since the Dutch tulip market crash (don't laugh, it was worth millions when millions meant something) in the 17th century, and have often been illegal. And I'm not even gonna mention naked shorts (short for naked greed) because they're even more fictitious than a Disney flick.
Third Problem: The Financial Services Authority (UK) banned Shorties on bank shares for a while, but now they think that the banks are okay (are they really?), so they've allowed them again. What's the first thing that happens? All the major bank stocks lose 40% of their value in a day, on average. My head is spinning like a dervish.
In a way, the government is giving the banks our future money, which it has to borrow to feed those banks, so that Shorties can undermine them, thus expanding the destabilisation of the economy. When are the banks going to start lending again in these market conditions? Banks were also a weak link in 1929.
Where is our money, really? I'll bet Shorty knows where it is.
So, the FSA has ensured that a largely financial crisis will most certainly spread throughout the whole economy, FOR A LONG TIME. The 1929 crash eventually affected the real economy for a whole DECADE, probably aided by the fact that short-selling was illegal sometimes and sometimes not. And remember, only Shorty benefits from such conditions of uncertainty.
Things are different now. We would not now borrow money to invest in stocks. But, British and Americans borrowed to invest in houses because prices were inflating artificially, making them look like a 'sure bet'. So, they are the most indebted nations, on a personal level, and thus more vulnerable to this downturn.
However, we now have a social safety net and we've long since become accustomed to mortgaging our futures and those of our children, as individuals and as a nation.
We'll all be like the hero in the action movie who takes bullets, knives, bats and punches and keeps on going dizzied because he's righteous, he's a fighter and he doesn't know what else to do.
Have we learned anything from these crashes? Do we need stock markets, after all? Do they provide us with nothing more than the illusion that we have a strong economy, and a retirement stock portfolio, so that we can lend our hard-earned money to some suits to make them rich? I, for one, would like to start by 'going long' and sticking it to Shorty.
So, people have to find a way to slay this deadly paper monster before it eats us all.
checkitout: http://en.wikipedia.org/wiki/Short_Selling
& bbc2 1929 on i-player (58 minutes)
UPDATE: THIS FROM THE ECONOMIST 29 OCT '08 STORY OF
HOW VOLKSWAGEN AND PORSCHE BUSTED THE HEDGER CARTEL
mikeinwarsaw wrote Oct 30 2008 0953
I am delighted that the hedge funds are suffering. About time. The whole idea of selling something you don't own and have not paid for to deliberately drive the price down and then buy back pocketing the difference, should be made strictly illegal. In the normal real world such activity is called fraud. Try selling your neighbour's car or house not having paid him for it and doing that to a lot of people, then buying back the asset at a much lower price, your pocket will be the difference. But what about the real owner of the asset? He/she is now the proud owner of an asset that directly through your activity has dropped in value. In the real world you would very quickly be arrested for fraud and theft. In the investment banking world its called aggressive brilliant profit making.
http://www.economist.com/business/displayStory.cfm?story_id=12501847&source=features_box_main&mode=comment&intent=readBottom
So, the governments of the world must make this practice illegal, or else they will leave us enslaved to the hedger cartel's fraud. It's that simple.
