Ban on short selling: A panic solution

Europe instituted a ban on short-selling stocks today. This is a decision made out of panic, and without analyzing the consequences. For those of you who don’t know what short-selling is, I’ll explain. An investor can borrow a stock and sell it immediately in the hope that the price will go down, when he or she will then purchase it. European leaders seem to think that because the investor is betting that the stock price will fall, this behavior makes the market fall without good reason. This is completely false. The investors have to buy the stock after it falls, so they actually give it support. Short selling is a legitimate market practice, and it helps to keep modern markets stable.

Unfortunately, European leaders are in such a panic to finance their debt that they are strangling the financial markets through regulation. Accountability and transparency are excellent results of regulation, but actively removing trading instruments can only hurt the markets. Financial markets are in turmoil not because of short-selling, but because of major sovereign debt issues. Leaders are attempting to fix the problem by treating the symptoms rather than actually resolving the root issue. If policy makers can remove their heads from the sand and make real progress in solving the credit crisis (and that means considering unpopular solutions), then everything else will fall into place: the markets will stabilize, employment will rise, and the overall panic atmosphere will dissipate.

Advertisements

About revelationtoo

Gerald Welch is a progressive author living in Madison, WI. After becoming a victim of corporate fraud and runarounds, he decided to write two books, Welcome to Reality and Corporacracy, to share his experiences and ideas. Look for them in stores and online to understand his story and what Corporacracy means to you!
This entry was posted in Uncategorized. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s