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We have talked about short selling as Matt explained it to us but if it is still a little murky even after watching the video that Dr. McKinney posted, here is a article that explains more about it. It also explains more about what Germany is doing and what they have banned.
http://money.cnn.com/2010/05/19/news/economy/naked_short_selling_wtf/index.htm
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I think it's good that Germany banned naked short selling and, from a purely logical perspective, it doesn't make sense that it's legal in the United States. If so many financial folks stand behind the idea of the Efficient Market Hypothesis why would they support naked short selling which drives stock prices down so they don't accurately reflect supply and demand. Doesn't sound like a very efficient market to me.
ReplyDeleteI agree with Chloe. Naked short-selling doesn't make a whole lot of sense. I don't understand why people are allowed to participate in the financial markets with money that they do not have or why sales can go through on a regular basis without a quick "fact- check" of funds. Traditional short sells are fine because the two parties are making an agreement and dealing with a physical security. It seems that Germany simply wants to limit the spectators who do nothing more than gamble in the market with money that they have no access to.
ReplyDeleteThis market falls into the trap often set by people discouraging financial regulation. It allows short selling to be equated with naked short selling (even while it defends short selling). The two need to be separated and sense be made of how their different, rather than how they are the same. I think Germany has made a truly bold move, and I for one hope it works.
ReplyDeleteAfter reading this it makes me think that most investors don't understand what it was that Germany was trying to do. For the stock market to take such a huge hit, when all they were trying to do was provide for a more stable investing environment. Then again it also created a great opportunity for those who like to participate in the regular short selling market.
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