Recent Blog Posts
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The Times' Rorshach Geithner Story
Apr 27 20099:04am EDT -
Sinking Animal Spirits
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Counter-cyclical Urban Policy
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Be Your Own Counterfeiter
Apr 26 20099:04am EDT -
Being Tim Geithner
Apr 25 200912:04pm EDT -
Notes From a Press Conference Naif
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What Good is the News?
Apr 25 20098:04am EDT -
Stressful Enough
Apr 24 20092:04pm EDT -
Not Regretting the Pound
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Introducing the New Ford Squeeze
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Non-Economic Questions of the Day
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The Stress Test Blind Alley
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Happy Hour
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Recovery Without Rebalancing
Apr 23 20096:04pm EDT -
The Shape of Your Recession
Apr 23 20095:04pm EDT
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When Regulators Panic
The range of regulatory responses to the current chaos in financial markets is instructive. The SEC bans naked short selling, the Russians just close down their markets altogether before announcing plans to spend $20 billion on stocks, and the FSA, in the UK, has banned all shorting of financial stocks for at least 30 days.
Meanwhile, the broad US stock market -- the closest thing we have to a gauge of overall market sentiment -- is in the midst of yet another nasty lurch downards. The S&P 500 is now at a four-year low, and has lost more than a quarter of its value since May. Oh, and any institutional investors thinking maybe a money-market fund might be a good idea right now are going to want to choose someone other than Putnam, which is liquidating its $12.3 billion fund.
The regulatory responses aren't going to be particularly effective: anybody who really wants to short financials will still be able to do so, by using options or ETFs or some other workaround. But maybe this is just the financial equivalent of x-raying shoes at the airport: it makes it look as though Something Is Being Done in the face of all the carnage. After all, regulators are just as adept at CYA moves as anybody else.
Update: This just in, from the WSJ: New York Attorney General Andrew Cuomo has started a "wide-ranging investigation into short selling in the financial market". Thanks, Andrew.
