Bad News Ban Is Very Bad News
The SEC … said in a statement early Friday morning it is halting short selling on 799 financial stocks. The ban, which is effective immediately, is set to last for 10 days, but could be extended for up to 30 days.
That is, they have banned speculators from giving bad news about 800 finance companies. Which seems to me to be very bad news about those companies – sell! If not for the first amendment, would they also ban TV, newspapers, etc. from saying anything bad about these companies?
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And the UK now has lifted its shorting ban, in response to which traders took the Royal Bank of Scotland down, based on its holdings of American MBSs and what seems like a now-questionable merger with Dutch bank ABN-AMRO:
"Stephen Hester, the chief executive of the Royal Bank of Scotland, criticised the decision to lift the ban on the short-selling of banking shares yesterday as he saw his own bank's price collapse by more than 66 per cent to only 11.6p."
The Royal Bank of Scotland was worth BP75 billion(!) recently - but froze in the credit crisis this fall and received BP32 billion in bailout money from the UK government. After the shorting run today, the bank is now worth just BP4.5 billion: more than BP100 billion in value destroyed.
It appears the UK ban on shorting did as little good as the American, and prolonged the death of the Royal Bank of Scotland in the most expensive manner possible. If short sellers had been allowed to give their bad news about their estimates of the worthlessness of the bank's American holdings earlier, at least the UK government would have been able to nationalize it sooner, reducing the length of the crisis, perhaps rescuing some jobs, and possibly saving that BP32 billion in bailout funds.