By the time all this carnage is over, the markets will be blamed by the politicians…and most people will believe them. But it’s the politicians, not the bankers who are to blame. The greedy bankers will be the scape goats. The politicians blamed the short sellers for the banking shares collapse. So they banned the practise of short selling…they are idiots. Since the short selling ban, the shares of the banking institutions have fallen by more than a half…who can politicians blame now?

Short selling actually works to prevent collapses in the stock prices. Here’s how it works. As a short seller, I bet that a share price will fall. The share price falls and I cover my position by buying the share back. All the short sellers who buy the shares back provide support for the stock price and ordinary people see the rally in the stock price and decide to hang on in there.

Now, since short selling has been banned, the stock price goes down, there is no short covering rally to stop it, the share price doesn’t bounce, it’s just keeps going down and down and down. Ordinary people get spooked and instruct their mutual funds to sell. The funds sell. There is still no short covering and the market continues lower. This becomes a self reinforcing panic. Everybody sells everything. The markets plummet at unheard of speed. This is the direct result of banning short sellers. The governments told us that the greedy speculators wouldn’t be allowed to drive the prices down any more…they were banned from profiting during the panic. Phew…the stocks shouldn’t go down any more now that those greedy short sellers are barred from their immoral activity…right? Wrong! The result of the short selling ban has been that stock markets have put in their worst week EVER….in history…almost as soon as the government banned short sellers. Now, no one is buying anything and the floor in this market cannot be seen….that’s how far we are above it.

Of course, the governments will tell the public that its a good thing they banned the short sellers or it could have been much worse. Again, most people will believe them. But those who understand this causal relationship won’t believe the politicians. The politicians have caused this market rout. We know, because it didn’t happen until they started to interfere…and very soon after they interfered, the worst week in history ensued.

Then they will blame YOU…the public. They will likely put in measure the limit the downward share movements or even worse, as many countries have done, they will close the market. Anyone would think that the politicians are deliberately trying to crash the markets! Everything they do adds to the crisis. The market worked perfectly, until politicians get involved. It looks like they will kill it eventually.

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Tags: Global Credit Markets, Markets, Money, Stocks and shares

The £500bn ($875bn) bailout in the UK of the banking system has implications for the people of the UK, but probably not the tax payers. The deal is based on the Swedish model that proved successful in the 1990s when the Swedish government took an equity stake in several banks and later sold the shares at a profit. It’s likely that the same result will follow in this banking deal. Gordon Brown urged World leaders to follow Britain’s lead and do similar deals to try and unfreeze the credit markets globally.

The deal however, has implications for those on fixed incomes and those with savings. Let me explain. The money has to come from somewhere…it will likely come from printing presses, hence the pounds fall against even the dodgy dollar over the last 2 days. Per capita, the UK bailout bill is about 6 times greater than the US bailout bill…ouch! Once the money has been created, it will devalue all the other currency in existence in the UK. This means inflation and heartache for holders of British pounds. So while details of the plan are eerily sketchy, they look similar to Warren Buffets deal with Goldman Sachs, the British tax payer gets preference shares  and dividends for as long as they hold the shares. They also get to call a few shots at the top regarding executive and  To get an idea of how much equity the initial £25bn will buy in British banks, it’s over half of the current market value of the top 4 banks in the UK right now.

That means that the government has in essence taken over the banks and along with the levers of political and legal power, the UK government now has at it’s disposal the levers of retail financial power. Does this make anyone else uneasy? Hopefully, not tyrannical or dictatorial individuals will find their way into number 10. If they do, it will be awfully hard to get rid of them!

The signs aren’t good, the markets have still plummeted in the wake of this bailout…confidence doesn’t look to be restored…in fact the opposite seems true.

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Tags: Banking, Global Credit Markets, Gordon Brown, Investors, UK Bailout, UK Banking