What happen to capitalism?

Today Commisioner Cox, who was afraid of being fired by John McCain, quickly drafted an ingenious plan to ban short selling out right for 799 financial companies.

Now for those companies that weren't invited to such exclusive party start knocking on the door wondering if they just missed the memo. Well the party has just started, let's see how the host are going to handle that. 

Below is a very nicely put statement from Reggie Middleton's Blog 

Note to Commissioner Cox: You have doomed the last two independent investment banks. Congratulations. By actually trying to directly manipulate the US capital markets by literally banning the short selling of a certain cadre of stocks (while allowing the long buying of those same stocks) you have upset the natural equilibrium of our capitalistic environ. You must learn to wrap you mind around, and grasp the difference between, price and value. The short sellers were driving the prices of these investment banks down to match their value. Now, with your short sighted intereference, you have allowed - no, let's be more accurate, you have overtly facilitated the divergence between price and value. 

For one, you cannot prevent astute investors from taking bearish positions on a company. You preside over the most advanced, and complex financial markets in the history of the world, not some third world nation that is just opening its first exchange as an extension of the town food market!

Word has it that the clients of Morgan Stanley are fleeing, despite (or maybe even because - due to the drastic socialist nature of) your actions. Because you have allowed longs to bid prices up way above their intrinsic economic value, you have injected an unprecendented amount of volatility into the system. This increases the cost of capital, my friend, not decrease it. When the truth meets reality, what do you think will happen to share prices? That's right, they will fall that much more. A market needs two sides to a trade, not just one. I hear you plan on preventing investors from selling stocks at a loss next, which will be music to the ears of those at the IRS!

The point of no return

Another historical day on wall street. After Monday drop of 500+ points, the DOW lost another 450 points today. While the Russian market had to be forced closed 2 days in a row after dropping more than 17% each day. A quarter of the Russian market value vanished in thin air within 48 hours. 

However, we still see some "level headed" financial analyst spoke out about the matter regarding the lost of confident of Morgan Stanley and Goldman 

Quote: "Glenn Schorr, an analyst at UBS AG, said today in a note to investors that the market reaction was ``insanity.'' Goldman and Morgan Stanley aren't at risk of running out of money because they keep plenty of cash on hand and can borrow from the Federal Reserve and a consortium of banks set up over the weekend, he said, noting that both have enough capital to absorb any losses."

So the market is insane. Goldman and Morgan Stanley have plenty of cash. If they do, why are they considering merger with other banks. Why did Morgan ran out to the Federal Reserve for loan immediately when it was available back in Feburary? Why does credit-default swap on Morgan Stanley debt cost so much? 

We will always have those outspoken champion calming down the market. The so call "insane" market is indeed very emotional. It is better to join them than fight them. In the long run the truth will review itself if not sooner.