4 ms·

Short sellers got rough treatment during the crisis, much of it undeserved. But we should not lump all short sellers together. Fear mongers do exist, but they

by T_S_ 17y ago

Short sellers got rough treatment during the crisis, much of it undeserved. But we should not lump all short sellers together. Fear mongers do exist, but they only thrive in a low information environment, such as a panic. If banks and other companies provided, or were compelled to provide better ongoing information, they wouldn't be exposed to rumors in the first place. They probably wouldn't see their stocks overinflated either, due to the actions of legitimate short sellers.

grandalf 17y ago
I would argue that the "parasitic" short sellers who are information poor should not be viewed differently than "long sellers" who are information poor... and are generally considered perfectly acceptable. A "panic" is just the price decreasing version of a bubble...
- T_S_ 17y ago
  I agree. Ever notice how the media always treat a stock market rally like a sunny day? Too many sunny days bring a drought, which in this case means no chance to buy value at a good price. Short sellers are like rain. My main complaint is that investors are information-starved and our public policy is to blame. All this outrage about people gaming the system is a distraction. We need to fix the system, starting with the banks.
  - grandalf 17y ago
    I'm curious what your proposed solutions would be... mine are: - remove capital adequacy requirements as they (like a paper seatbelt) create a false sense of security. Firms should compete on the basis of soundness as well as other characteristics. - pass a law outlawing bank bailouts. - remove restrictions on non-accredited investors, short-selling, derivatives/options trading. - Increase disclosure requirements for financial institutions. - Create a new financial statement called "Statement of Risk Exposure" which is a list of the firms' assets in terms of risk. If an asset is on a debt owed by another firm, then that firm's risk statement could be copied and inserted inline, recursively.
    - eru 17y ago
      Yes. We need more bank failures! We should get to the point where a bank failure gets the same attention as any other bankruptcy. The book "Just get out of the way" (http://www.amazon.com/Just-Get-Out-Way-Government/dp/1930865546 http://www.amazon.com/Just-Get-Out-Way-Government/dp/1930865...) has some interesting ideas on how to apply the lessons of now-developed nations to developing ones: Don't copy the bloated institutions the rich world has now, but get inspired by what made them great in the first place. Often these were simpler policies. (Of course this also applicable to developed economies, again.) The author also advocates ridding banks of any (even implicit) government guarantees, to make customers look out for their money instead of relying on glorified ponzi schemes. (Which banks are in a lot of developing countries.)
    - T_S_ 17y ago
      You can see my suggestions about transparency above. I won't repeat them here. It provides the teeth to your disclosure requirement. I would suggest that instead of asking for line items by risk, we simply open the banks' books and get an electronic term sheet for everything listed. I don't want to know their risk numbers. They calculated them. Your other measures are interesting. I would keep capital adequacy but seize the bank before capital went to zero. That would improve incentives a bit. The key thing is to claw back the economic rents that bankers have been handed. Most of these rents are connected to information that bankers have and we don't. This can be changed, but not with the help of today's regulators who are still in thrall to the banking industry despite their statements to the contrary.

by T_S_ 17y ago

grandalf 17y ago

I would argue that the "parasitic" short sellers who are information poor should not be viewed differently than "long sellers" who are information poor... and are generally considered perfectly acceptable. A "panic" is just the price decreasing version of a bubble...

T_S_ 17y ago
I agree. Ever notice how the media always treat a stock market rally like a sunny day? Too many sunny days bring a drought, which in this case means no chance to buy value at a good price. Short sellers are like rain. My main complaint is that investors are information-starved and our public policy is to blame. All this outrage about people gaming the system is a distraction. We need to fix the system, starting with the banks.
- grandalf 17y ago
  I'm curious what your proposed solutions would be... mine are: - remove capital adequacy requirements as they (like a paper seatbelt) create a false sense of security. Firms should compete on the basis of soundness as well as other characteristics. - pass a law outlawing bank bailouts. - remove restrictions on non-accredited investors, short-selling, derivatives/options trading. - Increase disclosure requirements for financial institutions. - Create a new financial statement called "Statement of Risk Exposure" which is a list of the firms' assets in terms of risk. If an asset is on a debt owed by another firm, then that firm's risk statement could be copied and inserted inline, recursively.
  - eru 17y ago
    Yes. We need more bank failures! We should get to the point where a bank failure gets the same attention as any other bankruptcy. The book "Just get out of the way" (http://www.amazon.com/Just-Get-Out-Way-Government/dp/1930865546 http://www.amazon.com/Just-Get-Out-Way-Government/dp/1930865...) has some interesting ideas on how to apply the lessons of now-developed nations to developing ones: Don't copy the bloated institutions the rich world has now, but get inspired by what made them great in the first place. Often these were simpler policies. (Of course this also applicable to developed economies, again.) The author also advocates ridding banks of any (even implicit) government guarantees, to make customers look out for their money instead of relying on glorified ponzi schemes. (Which banks are in a lot of developing countries.)
  - T_S_ 17y ago
    You can see my suggestions about transparency above. I won't repeat them here. It provides the teeth to your disclosure requirement. I would suggest that instead of asking for line items by risk, we simply open the banks' books and get an electronic term sheet for everything listed. I don't want to know their risk numbers. They calculated them. Your other measures are interesting. I would keep capital adequacy but seize the bank before capital went to zero. That would improve incentives a bit. The key thing is to claw back the economic rents that bankers have been handed. Most of these rents are connected to information that bankers have and we don't. This can be changed, but not with the help of today's regulators who are still in thrall to the banking industry despite their statements to the contrary.