Your problem is that you’re looking at this from a narrowly economic point of view. Yes, from that point of view, banning short selling is likely to heighten the market crisis.

So what? Markets don’t vote. The electorate decides who will win the next election. And the electorate is moved by narratives.

The narrative that is out there right now is forming a huge bull’s eye right on their fat asses, and that with an election just 6 weeks away. Their wanton, deliberate, legalized-bribe-driven, complete failure to regulate the shadow banking system, is leading to a major market meltdown. That narrative cannot stand. But it will stand unless they replace it with another.

The new narrative is going to be that it’s all the short-traders’ fault. Obama and his namby-bamby good old boy network insider friends will tell you that bold action like guillotining short-sellers on the Mall would not really help the market situation, that it would violate people’s rights, etc., etc. All just weak ACLU crap designed to cover for Obama’s insider friends. Only John McCain will take bold action to save us and, more importantly, punish the guilty, in this time of crisis.

Look, even if this particular line doesn’t emerge as their narrative, the wider point is that you should not be misled by the analogy to the Great Depression to the comfortable belief that, surely, such an epic fail in the markets that the other side has aided, abetted and enabled to the hilt, will inevitably lead the electorate to turn on the enablers and facilitators. The other side thrives on fear and terror in the electorate. They are infinitely more ruthless than our side at exploiting narratives that will turn that fear to their electoral advantage.

And if the actions that they take to feed the narrative that successully shifts the blame happens to make the underlying reality worse, well, that’s life. As long as the blame is shifted successfully, the magnitude of the disaster doesn’t hurt them, in fact, is better for them if they have shifted blame to the political opposition. Sure, it’s possible that the blame shift won’t work, and they will be left with that much bigger a price tag. But this market meltdown already carries a Wrath of God price tag. Might as well drown in sixty feet of water as in six…

Followers of Karl Marx call it heightening the contradictions. Followers of Karl Rove call it taking care of business.

Any company that is considered “too big to fail” must be broken up into many “too small to matter” companies so that one or several can tank without having any overarching effect on the economy.

‘Pyramid.’ Huh. Tombs of their creators, weren’t they originally?

Excellent point.

Consider this:

You look at the market or a stock and you wonder whether it’s going to go up or down.

If you think it’s going to go up, then you’d buy it.

But, if you think it’s going to go down, what can you do to make that bet?
The answer is short selling.

But, as the market demands that you only sell what you own, there is some fancy footwork wherein you borrow the stock and sell it. If it’s price goes down, then you buy it back low — thereby having achieved the “buy low, sell high” in reverse “sell high (short), buy low” and make a profit on the difference between the low & high.

Naked shorting, despite sounding like Danny DeVito hawking something on t.v., is selling WITHOUT borrowing the stock first. As was said above, this creates new stock out of thin air (see borrowing money from the Fed to create new money or credit).

Naked shorting thus has somewhat different effects, if done in large amounts, than ordinary trading or shorting.

Now, for today’s situation: why would they ban shorting? I’d guess there’s some malfeasance afoot, despite not having evidence of it. After all, consider who’s involved. What do they want to do? Usually when you’re selling you want the price to go down, so you can buy it back lower. So, what can they do to scare the market into falling? Well, they seized F&F and AIG and let Lehman fall. One could argue they started a war in Georgia. They’ve tried a lot. What happens now? What if there isn’t a crash? How long can the shorters maintain vigilance before losing on their bet that the market will crash?

The answer is somewhat like wondering how long banks & others can hold empty houses before having to sell them for 10 cents to the dollar or let the market evaluate them at worthless. The stronger will survive, but many will sell and lose money and many will stupidly hang on and lose everything. I suggest house owners refi with the Housing Law provisions and end their worries.

On Wall Street it’s not like that. They’ve got to hold on or even push the market up to force the shorters off the cliff.

Lets just ban WALL STREET alltogether…mokay?

No ‘fraid not. This is still a free country and we need a place like the markets where Rich people can show their utter incompetence (at times) and fail as big as they want.

Ya know they would’ve made and kept more money in their pockets if the markets had been better regulated and if Gramm had never been a senator than they’ve made from all the Bush taxcuts.

Ya know it’s true!