There is tangible fear in the markets that has been created by the German announcement of short sale bans and exacerbated by the possibility of a pan European application.
As I write the markets across Europe are down over 2% and the CNBC banner reads “ European Shares Tank on Shorting ban fears”
Playing to the German political grandstand is not a good way to establish a coherent economic policy.
I never thought I’d hear myself say this BUT I agree with French Economy Minister Christine Lagarde, who has spoken out against the German move and confirmed that “France would not be following a German move to ban the naked short-selling of sovereign debt.”
She is talking a great deal of sense.
Another person who knows more about short selling than almost anyone else is Jim Chanos, Founder of Kynikos. I agree with him too.
Having spent two days with European regulators last week trying to explain the benefits of the practice – his frustration was obvious in remarks he made at a recent Boston conference.”No matter how much you want to impart logic to these people, they’re mired in their views of the past about the roles of speculators”.
The Germans are mistaken in their backward looking and outdated perspective on this problem.
Blaming the speculators is missing the point. There are greater forces at work.
The Germans are playing politics when sound economics is what is called for.
The markets not the speculators are telling them what they think of their misguided intervention.
Naked short selling in the equity markets is a smoke screen and banning it will make no difference.
Reducing liquidity in the European Government Bond markets now may be like screaming ”feuer” in a crowded nightclub.
I hope not – but I fear so.
