A financial news blackout sine qua non effective immediately through 2 Oct 2008 orders cease and desist to 799 brokers.
Washington, D.C., Sept. 19, 2008 -- The Securities and Exchange Commission, acting in concert with the U.K. Financial Services Authority, today took temporary emergency action to prohibit short selling in financial companies to protect the integrity and quality of the securities market and strengthen investor confidence. The U.K. FSA took similar action yesterday. [...] SEC Chairman Christopher Cox said, "The Commission is committed to using every weapon in its arsenal to combat market manipulation that threatens investors and capital markets. The emergency order temporarily banning short selling of financial stocks will restore equilibrium to markets. This action, which would not be necessary in a well-functioning market, is temporary in nature and part of the comprehensive set of steps being taken by the Federal Reserve, the Treasury, and the Congress." [...] The Commission also has taken the following steps to address the recent market conditions: Temporarily requiring that institutional money managers report their new short sales of certain publicly traded securities. These money managers are already required to report their long positions in these securities. Temporarily easing restrictions on the ability of securities issuers to re-purchase their securities. This change will give issuers more flexibility to buy back their securities, and help restore liquidity during this period of unusual and extraordinary market volatility.
No, this order doesn't "restore equilibrium." The order suspends particular "price discovery" signaling which may or may not accurately assign valuations of assets underlying paper in circulation. This particular trading strategy presupposes deflation of market value per share.
World markets soar on possible US rescue package
Investors also took heart from word that the U.S. government was seeking the power to rescue banks by buying distressed assets at the heart of the financial system turmoil that's brought down Wall Street giants Lehman Brothers, Merrill Lynch and Bear Stearns -- news that sent global markets plunging earlier this week. Details of the plan were still being worked out, but U.S. Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill to say he hoped to have a solution "aimed right at the heart of this problem."
Details of the plan were still being worked out, but U.S. Treasury Secretary Henry Paulson emerged from a nighttime meeting on Capitol Hill to say he hoped to have a solution "aimed right at the heart of this problem."
The "US rescue package" is not yet disclosed. Earlier this week former FRB chair Paul Volker in a WSJ OpEd advocated for restoration of the RTC to "sweep" non-performing assets, illiquid and available for sale, held by US financial firms.
Last night Sen. Schumer (NY) advocated for restoration of the RFC authority to recapitalize certain financial firms by Treasury purchasing securities, presumably corporate bonds and equities. Schumer criticize the RTC model, saying it would "simply transfer excessive risk to the U.S. government without addressing the plight of homeowners."
Similarly, Sen. Clinton (NY) has proposed that Congress authorize a Treasury agent like the Home Owners Loan Corporation (HOLC) which was one of eleven subsidiaries financed in part by the RFC.
The RFC Liquidation Act of 1953 terminated RFC lending authority and abolished the corporation, effective June 30, 1957. The remaining functions and outstanding loans of the RFC were transferred to the Housing and Home Finance Agency, General Services Administration, Small Business Administration (SBA) and the Treasury. Over the period, the RFC had lent approximately $13 billion.
In other news, NBER has not yet declared the US economy in recession. Diversity is the key to economic and political evolution.
That is something that has puzzled me for some time: long holdings are reported quarterly, but short holdings are not (short interest is reported monthly by the exchanges)
Temporarily easing restrictions on the ability of securities issuers to re-purchase their securities. This change will give issuers more flexibility to buy back their securities, and help restore liquidity during this period of unusual and extraordinary market volatility.
When a firm's liquidity problems are a motive for panic selling, it doesn't have the cash to provide liquidity to the market!
Anyway, there are ways to get around short-selling restrictions. This just forces a reduction of the leverage of long-short portfolios. A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
long holdings are reported quarterly, but short holdings are not (short interest is reported monthly by the exchanges)
I assume firstly that more short sellers than not are conversant, even expert, with the "real" performance of corporations to which they assign negative cap. "Long holdings" reinforce current growth metrics and hedge complementary, timed short positions. The value of the former, required, is IMO primarily an artifact of regulatory expectations. Further, short reporting is more frequent; parity to long isn't that important, given an operating assumption, unanticipated and exogenous factors are always significant in modeling future cash flow.
Yes. However our examinations tacitly weight microeconomic characteristics, firm level conditions. Much less unique torts conflicts such as warrants governing disposition of securities by firm. It is customary today to opine in macroeconomic terms only, to generalize; none of which accommodate knowledge of INCOME from SALES accumulated by firm operations or even profit, retained earnings, operating DEPENDENCIES on INTEREST INCOME (LOSSES). Such is the value of finance capitalism, where productive assets are vested almost entirely in market value of paper trade or rents rather than real property labor, plant&equipemt, or even commodity demand.
Just so evaluation of any one firm's ongoing concern is dependent on its risk management strategy to accumulate unearned capital by lending future income at premium. Diversity is the key to economic and political evolution.
When did the US treasury lose the ability to purchase securities? A vivid image of what should exist acts as a surrogate for reality. Pursuit of the image then prevents pursuit of the reality -- John K. Galbraith
Some historical distinctions are in order.
Congress established the RFC at the end of Hoover's admin. It's function was cash credit facility to the private sector because the FRB had no lending authority. Congress required public disclosure of borrowers. The program was considered a failure at FYE because management of banks and industrials feared disclosure (panic, stigma, misallocation) so did not exercise the facility although rates were um subprime.
Within FDR's first 100 days, Congress amended the Emergency Banking Act to permit the RFC to purchase also corporate securities directly (open, closed market) in addition to issuing RFC bonds to the public. Treasury also initially financed the RFC in treasuries seed capital. FDR appointed Jesse Jones RFC board chairman during the same period. Jones's authority in equities selections and tenure at RFC and Commerce through to WWII was a contentious topic over the period. (for example, 25 Jan 1937)
Today of course a few observers have noted that the purchase of FNM, FRE, AIG "equity" by Treasury agents serves the same purposes as that of the RFC... while explicitly endorsing Jones's "shareholder" prerogatives. The legal and arcane authorities exercised by the FRB and Treasury have been cited extensively in numerous public reports and www FAQs, especially "Blueprint for a Modernized Financial Regulatory Structure," a prospectus.
Others are still enthralled by free market principles or confused by the RTC function which was receivership. Diversity is the key to economic and political evolution.
Gov't rushing to finish huge financial rescue plan
Earlier, Bush authorized Treasury to tap up to $50 billion from a Depression-era fund to insure the holdings of eligible money market mutual funds. And the Federal Reserve announced it will expand its emergency lending program to help support the $2 trillion in assets of the funds.
Setting aside confirmation of a "Depression-era fund" ...
Treasury announced Wednesday evening it would purchase AIG securities. The White House PR claim today somewhat contradicts the unique stature of that Agreement: "all of the assets of AIG and its Material Subsidiaries" are pledged collateral and, separately, warrant for purchase of 79.9% common shares of AIG by the FRB. Diversity is the key to economic and political evolution.
