The Short Sellers Did It: 
October 14. 11 am. What is striking and tempting of what is in common between the crash of '08 and the bear market recession that is now deepening, and the crash of '29 and the bear market recession that deepened into the Great Depression, is that there are the same scapegoats. Amity Schlaes reminded me Sunday 12 that the most satisfying blame-shifting in 1929 was to claim that the short sellers did it. The same excuse is commonplace today, even from a lord of finance such as the formerly really rich John Mack of the former investment bank Morgan. Blaming short-selling in 2008 is to blame the whole final capitulation ride of 18.8% market plunge in the week 6-10 on the willingness of a handful of (said to be) sulfur-sipping horned villains in airless chambers under Wall Street to throw stocks on the fire like twigs and reap the profits of Hades. Surprisingly this was the exact scenario offered to an entertained public between 1929 and the election of 1932, with this twist: the genius of the SEC did not exist in 1929, so there was no cop on the beat. This time, with SEC chief Christopher Cox (right) watching, whole sectors such as finance were exempt from short-selling for weeks after the banking stocks started their fall this spring and summer. Did it work? Nope. The stocks that were on the banned list, before the crash week of 6-10, declined 26% without shorting, while everything else was off much less. And then when the shorting ban was lifted last week -- delightful timing -- the selling accelerated to the lows of Friday 10. Blame the short sellers? Nah.
Sharks Watch Sharks
CEOs like Bob Simpson of XTO and Bruce Smith of Tesoro were forced to liquidate their vast holdings in their own companies just because they had bought on margin. The short sellers were successful with those two asset rich companies just because of the greed and cockiness of the bosses. Short selling is a natural parasite. It challenges the weaknesses of both greed and fear. Banning it was a bad idea, because it didn't work and because it left weaknesses in good companies exposed for plunges. Also, short selling is risk management (right, Frankfurt DAX trading floor). You short sectors because you are over exposed long in others, or because you want to box your holdings and take just some of the long term profit. The genius of the SEC was invented in the FDR 100 Days in 1933. Seventy -five years later it rumbled into action to ban short-selling, and the result was sloppiness and most importantly confusion. The notion of a cop to watch sharks is droll. Sharks watch sharks. The notion of blaming a shark for eating is droll. Sharks eat. It is the free market -- until now. What does a TARP shark look like? Polite? Better haircut. Leaner?
(1)
Gleeful reportage of America’s immanent collapse may be a bit premature. As Bret Stephens in today’s Wall Street Journal opinion article entitled, “ America Will Remain the Superpower”, so eloquently wrote, “…when the tide laps at Gulliver’s waistline, it usually means that Lilliputians are already 10 feet under.” What we have learned from all this, is that in this global village of ours everything is interconnected. We all rise and fall together, but the overall balance that defines the hierarchical positioning of our global States remains essentially the same.
So much has been the case throughout history: the essentially glacial movement by which the balance of power between empires has shifted. Stephens goes on to say, “Constantinople fell to the Ottomans after two centuries of retreat and decline.” And “It took two world wars, a global depression and the onset of the Cold War to lay the British Empire low.”
It’s been an eye-opener to me how easily we’ve absorbed the World Trade Center bombing, the oil shock, weak and ineffectual leadership, corruption, etc. Any lesser nation would have been pulverized by the very first salvo. How long did it take for Germany to get back on its feet after having been practically carpet bombed by the Allies and reduced to rubble? How long Japan? And yet, Africa consistently lags behind. Some academics suggest that this may be due to a dearth of navigable harbors on the Dark Continent; others blame deliberate manipulation by racist foreign interests. All this may be true or not, but the fact remains.
The fact remains also that the numbers show us to be the world’s only super power. Given our relatively short history, this should last long after either Obama or McCain will have closed up shop. The current financial mess, however, should serve as a wake-up call. It should tell us that the hard-wired principles of capitalism should not be tampered with so as to achieve results that are simply not achievable. Jesus said, “The poor will always be with you.” We must acknowledge that much as fact. He could have, but did not say, “the rich” or “the starving” or “those with (in)curable diseases” (such as mortality). He left it simply at “the poor”, thus inviting modern Marxist interpretations in support of eternal class struggle.
Let us then tolerate the poor. They are no different from us. Let’s not try to make them rich with the snap of a finger or by debasing ourselves. Our guilt, if well-founded, will reap its bitter harvest no matter what we do. Instead, let’s afford our less fortunate neighbors the same opportunities we ourselves have had. Let us also remember that it can be entirely noble to be poor (for those who so choose); that they are said to sleep better at night and have the advantage when conversing with St. Peter on the threshold of the Pearly Gates. But let us not presume to alter the protocol of success of which our Constitution and the Rule of Law are essential elements. Let us not bow to the thugs whose mantra remains “the means justify the ends” and thereby are free to do whatever they want. We cannot turn a blind eye to thievery just to avoid the ordeal of due process; we cannot tolerate wholesale violations of (election) law; we cannot jettison the rudder that has fated us to end our days in the greatest country in the world.
Well done, Peter. Thank you!
I would add, if I may, the Greatest and Most Just Nation Ever in History.
And, also, "Scalawags will always be with us, too. But, we can sweep them out the room with a corn broom bristling against their behinds" Spence
Am reading "The Age of Jackson", the 1945 Pulitzer Prize winning history by Arthur Schlesinger, Jr. The more I read the more I'm convinced there's nothing new under the Sun. There were a number of big crashes between the War of 1812 and the Civil War. They all involved banks, they all resulted in meddling by the politicians, who always acted too late and succeeded only in making things worse. People always claimed to be acting for the good of the people, but the common man was never much more than a pawn to be played in the struggle between bankers and big government. As it was in the beginning, is now ....
The more I study our history and the more I see what's going on today, the more I view our nation's finances as a big long 4-dimensional roller coaster moving forward in time. We're (hopefully) finishing a downhill now. Everybody screamed and a few people fell out of the car and some undoubtedly lost their lunches. We might have another drop soon in which case everyone will scream again; or the roller coaster might start to climb, in which case everyone will forget what utter cowardice they exhibited on the recent downhill.
Me, I'm just going along for the ride. I got a pretty nice life now, but I'm not all that much in love with our system as it now stands. I love laissez-faire capitalism, but not this make-believe capitalism we've had since FDR. I've worked hard my whole life and will continue working hard no matter where this roller coaster takes us, and so will you all, and you'll all live long and prosper. Now stop worrying! Time to act like we been there before, because we have.
By the way, I absolutely oppose any bans or restrictions on short selling. If there weren't a legitimate need for it, it wouldn't exist in the first place. Bans on short selling fall very squarely in the category of politicians pretending to be doing great things to help us when in fact the best thing they could do to help us is take a very slow boat to China and never return.
Mr. Henderson answers the telephone, “Henderson here, music producer extraordinaire.”
“Hi there! This is Sheryl and I have a totally awesome idea for like a song that will totally exploit the ecomonic situacion we all are having to suffer through because of that ugly George Bush. I want to start production on it like as totally soon as possible.”
“Okay, what is it you have in mind, Ms Crowe, just briefly,” he asked while rolling his eyes for the benefit of Mr Kite who is sitting, waiting to go to the circus for a show. They both snicker under their breath after Henderson covers the phone and explains, “It’s Sheryl.”
Henderson turns on the speaker function and they are listening as she tells “Well, I want to call it `God Bless This Mess` and, like all my songs, it will be very simple. And I want to sing about mama and daddy totally not understanding what’s going on in this day and time. And I’ve got this really catchy phrasing about a brother coming home from like some far off place and all he does now is like stare at the walls. Then I want to talk about something about like having to go to work for some insurance company. And the last is the best, because I wrote these lyrics about kinda sorta hearing and finding out through the grapevine about these two towers that like fell down in New York City for no apparent reason and all the totally awesome like brave people that went there to like try and help. And for a really cool ending, I talk about this President starting a war based on lies, lies, and more lies. And what’s even more clever is, I never like mention his name! Sound good to you, Henderson?”
Mr. Kite excuses himself and runs out of the office because he is about to explode with laughter while Henderson asked, “Do you want to produce this yourself, Sheryl or will you need me to help?”
“Yes, I want you to like help me put the ideas together, but, I really like want to take all the credit. I’ll pay for everything, but remember, you owe me some favors, right. Okay?”
Henderson sighs in relief (times are tough in the music business, too) and consenting says, “Alright! Yeh, it’s a great idea! When do you want to meet? I’m free whenever.”
Check out(if you want to) it lasts for like two minutes:
http://music.aol.com/video/god-bless-this-mess-sessions/sheryl-crow/2104532
Thank you Mr Batchelor for allowing me to participate in discussions on your new, improved site! It's very nicely done!
Your work is most appreciated and with a wish that all good things settle your way... Salut!
I'm still waiting for someone from the site to communicate with me about why my registration failed. Email me at drinkard at hotmail.com