Short Sellers Banned in France, Italy, Ireland, Spain

Who rules the markets? Not short sellers says France, Spain, Italy and Belgium. They just banned short sales wreaking havoc on their markets, for some banks. Echos of 2008 now abound. In particular, short sellers are focused in on Société Générale, which dropped 20%, betting it might implode.

France, Spain, Italy and Belgium will impose bans on short-selling from today to stabilize markets after European banks including Societe Generale SA hit their lowest level since the credit crisis.

While short-selling can be a valid trading strategy, when used in combination with spreading false market rumors this is clearly abusive. -- European Securities and Markets Authority

Perhaps the short selling ban impending move had much more to do with today's stock market pop up than erroneous claims that a little tick down in initial unemployment claims caused a 423 point Dow increase.

Zerohedge, cynically notes the ban on some banks can be easily circumvents through options puts and calls.

August 26 just went supernova, as this is the day the short selling ban expires, the BEA reports the second, sub 1% GDP revision, and Bernanke presents his 2011 Jackson Hole keynote speech.

One must question can this all be on rumor, or more, due to the bans, is something really stinky going to happen with European banks?

There are two rumors going on, one is that some European banks are under capitalized and have too much exposure to sovereign bonds and the other is France will be downgraded for AA+ from AAA by S&P. We noted credit rating agencies earlier affirmed France's AAA rating and yesterday they did again.

Austerity pusher IMF claims the markets are warning France not to bail out more Euro zone countries.

Still the last time shorts were banned was during the 2008 financial crisis and many are worried a bank default, just like Lehman Brothers, will be a contagion derivatives mess.

Yes, we still have CDSes on bank bonds and BoA, other U.S. banks, have been spreading due to worry on European bank and sovereign European bond exposure.

Credit default swaps insuring French bank debt continued to widen to new record levels on Thursday, a sign people are worried about the health of those banks and rising funding costs.

Societe Generale's (SOGN.PA) CDS were up 8 basis points at 342 basis points, after earlier trading as high as 383 basis points, Markit data show.

This cost has more than doubled in the past two weeks, coming under heavy pressure on Wednesday and Thursday, even after its chief executive strenuously denied rumors of problems at the bank.

BNP Paribas' (BNPP.PA) CDS costs were little changed on the day at 236 basis points, after earlier rising to 256 basis points, and are up from 110 basis points in early July. Credit Agricole's (CAGR.PA) swap costs last traded at 271 bps, up from 130 basis points in early July.

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Regulation of global capital

From Robert Oak blog:
 

Perhaps the short selling ban impending move had much more to do with today's stock market pop up than erroneous claims that a little tick down in initial unemployment claims caused a 423 point Dow increase.

... the ban on some banks can be easily circumvented through options puts and calls ...

One must question can this all be on rumor, or more, due to the bans, is something really stinky going to happen with European banks?

... many are worried a bank default, just like Lehman Brothers, will be a contagion derivatives mess.

Of course, it could all be on rumor! As in the classic  Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay. Maybe it has to do with rioting in North London. Who knows? MSM coverage of financial markets is a stinky joke. IMO, it's got to do with the gold market, but who knows how much of any up or down in the Dow is due to this, that or the other report or localized attempt at regulation of global capital?

Bottom line is that about the only effective regulation of global capital that can be cited today is China's currency management. I am not convinced that seeking to impose controls on that is possible or in our best interests in the long run.

First, we need to clear a path to reform of the monetary and financial systems in our own country, which (IMHO) will require some minimal protectionist trade barriers (including barriers to unimpeded flow of labor).

Just my 2¢ worth.

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