Merkel to the Banks and Speculators: Sprechen Sie Deutsche? Then Droppen Sie Dead
by ilene - May 18th, 2010 7:50 pm
Droppen Sie Dead? I think that means drop dead.
Merkel to the Banks and Speculators: Sprechen Sie Deutsche? Then Droppen Sie Dead
Courtesy of JESSE’S CAFÉ AMÉRICAIN
There is much surprise that the German government has declared a ban on naked short selling, including CDS, as of midnight tonight, with no prior notice or the niceties demanded by the banks when government chooses to act. This action seems to have perturbed some and confused many.
The reason for this may be quite simple.
After tonight, when hedge funds and the NY and London Banks call upon German financial firms and European governments to make payments on Credit Default Swaps or other financial instruments that are subject to the ban, the Germans will have a great big hammer in hand to help them to negotiate the terms.
Since the CDS will be deemed to be no longer legal, the option to default on them with the backing of the government may be an option. This seems quite similar to the stance that the Chinese government took on behalf of some Chinese firms that were caught on the wrong side of energy derivatives.
I have heard that there was a general disappointment in Europe and in parts of Asia at the lack of progress being made in the US Congress towards creating meaningful reforms in their financial system. In fact, there is a widespread belief that Washington is being dictated to by the Banks, and that their lobbyists are directing the conversation, and in many cases writing the actual legislation. The final straw was when the Obama Administration itself sought to water down and block key provisions of the legislation to limit the power and size of the Banks.
"To some degree this is a battle between the politicians and the markets," she said in a speech in Berlin. "But I am firmly resolved — and I think all of my colleagues are too — to win this battle….The fact that hedge funds are not regulated is a scandal," she said, adding that Britain had blocked previous efforts to do this. "However, this will certainly have taken place in Europe in three weeks," she said, without giving more details." Reuters, 6 May 2010
"German Chancellor Angela Merkel accused the financial industry of playing dirty. ‘First the banks failed, forcing states to
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Bear Stearns Boogie Man Yet Again
by ilene - March 7th, 2010 8:16 pm
Bear Stearns Boogie Man Yet Again
Courtesy of Mish
Once again a series of videos is making the rounds touting how evil short sellers destroyed Bear Stearns. I was asked to comment on this.
The video makes a bunch of assumptions
1. That whoever bought way out of the money Bear Stearns PUTs "knew" something and illegally acted on it.
2. The same institution that bought the PUTs was illegally shorting shares.
3. There is a conspiracy to protect those evil doers.
How The System Really Works
Fact #1: When someone buys PUTs the market maker or counterparty who sold them is short those PUTs. This is a mathematical statement of fact.
Fact #2: The market maker who sold the PUTs, shorts stocks as a hedge against those short PUTs.
Fact #3: The lower the share price, the more shares the market maker has to short to stay delta neutral.
Fact #4: Market Makers are not governed by naked shorting rules
The video alleges that it was the person buying way out of the money PUTs that was doing the shorting. The reality is the market makers who sold PUTs were most likely those doing the allegedly "illegal" naked shorting.
To stay delta neutral, the market makers were forced to short more shares the lower the price dropped. Also remember this happened with every PUT at every strike all the way down, not just on that batch of way out of the money PUTs.
It should not take a genius to figure out how easily this could spiral out of control.
Who Was Shorting?
It was probably Goldman Sachs, Citigroup, Morgan Stanley, Merrill Lynch or whoever sold the PUTs. Moreover, those market makers probably lost money shorting because of how quickly the stock plunged.
The irony is everyone blames the naked sellers for making a fortune by short selling when the PUT sellers lost more on the PUTs they were short than they gained shorting the shares.
Did Someone Know Something?
The video alleges that someone "knew something". Well someone did know something, and that something is what we all knew: Bear Stearns was not only the most leveraged of the large institutions, but also held the highest concentration of subprime mortgage garbage.
Also other institutions could see or at least feared a run on the bank at Bear…
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Philip R. Davis is a founder Phil's Stock World, a stock and options trading site that teaches the art of options trading to newcomers and devises advanced strategies for expert traders...
Ilene is editor and affiliate program
coordinator for PSW.