Friday, August 12, 2011

Why short selling ban should matter right now

There have been various references to the ban of short selling initiated by US in 2008 compared with EU's decision today. It didn't work then, markets did not stabilize and fell even more. I'd say that situation is very different right now. Back in 2008 the markets were driven downwards by bad fundamentals and outlook. Stocks didn't fall because of short selling (only). Right now there is much uncertainty in the markets. Whether we're going to see a double dip (another recession) or not remains unclear. Fundamentals are not terrible, the economies of the biggest are recovering, though slowly. Speculative greed and fear are driving the markets right now so ban of short selling will reduce the possibility of gaining from falling markets hence reducing the fear as well. Not to mention margin calls.

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