Tuesday, May 18, 2010

Germany Makes Mistake of Severe Consequences by Banning Short Selling

Germany's decision today to ban naked short selling and naked credit-default swaps of euro-area government bonds looks like panic. The issue is that market does not know what is coming. The decision does make it look like something is going on. We also know that such measures do not work, as similar measures were taken in the US before of the last crash.

Confirming this, according to Bloomberg, Marc Grant, managing director of Southwest Securities Inc. said “This is a mistake of a serious fundamental nature and of severe consequence,”, in a note to institutional clients. Germany is making “an obvious attempt to control financial markets across the globe by this action just as they plead for investors to provide funding,”.

Michael Malpede, analyst at Easy Forex in Chicago: "It tends to suggest desperation on the part of the German officials who want to discourage what they consider speculative attacks on euro zone financial markets."

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