people can still profit, but now have to actually own what they sell. imagine that- owning what you sell? what a concept!

Peter, you are right on the sticht with this post, however your questions have a simple answer.

I know I have posted this at least three times since last Monday, but what the heck!

1.THEY HAVE TO KEEP THE STOCK MARKET STABLE
2.THEY HAVE TO KEEP THE STOCK MARKET STABLE
3.WHEN IN DOUBT AS TO WHY - SEE ABOVE.

This is all the outcome of the rumors circulating on Friday the 11th. To counter these rumors and prevent a market melt-down, Bernanke injected one of his own and hinted that the Fed would make the discount window available to the both Fannie and Freddie. The ruse worked as the market stabilized before anyone figured out that the Fed is not empowered to make this move. The two F's are not part of the commercial banking system. Anyway! Now comes the W/end, the markets are closed and the wizards of Washington put their heads together. Sunday we get an announcement.
Bernanke claims the discount window statement is false, but Paulson is going to provide Treasury funding, if necessary. Paulson, with the backing of the White House, can do this on a temporary basis.
Paulson also states that the matter will be taken up with Congress and they will act quickly. Monday this matter is all over the media with all the players talking at the same time. The SEC's Cox now gets into the foray with the 30 day short moratorium.
Monday was historical - the last time it snowed in July in Washington was in 1816. Although everything stated in based in B.S. I give all involved an "A" (If Bernanke had hinted at a rate increase it would have been A+)
Fallout has been mostly positive - the markets have remained stable. The oil market pulled back.
The exec's of the two F's have both made statements that there is nothing wrong and they don't need any government help. (Of course they are raising capital??) The other financial's effected are not being mentioned and are just being caught up in the flow of optimism.
The government is going after the Jay Gould types? When are they going to charge Bernanke?
Since the government has so much foreign debt on the books they are doing CYA and the moves are all about money and little to do with the general public that elects them. It shows clearly in the Cox move. By statements there is NO CRISIS in the two F's - ergo, there is no national emergency. So, why is there a moratorium on LEGAL shorts?
Cox himself said they are necessary to sound market activity. Sounds like double talk to cover an illegal move. Since duration is only 30 days this is just going to blow with the wind.
Let's see if the oil traders play along comes Monday. Someone suggested that last weeks sell off was the result of selling to raise capital. Who is covered by Cox's move and who there needs capital? If there is any truth to this, oil goes back up real soon.

Isn't "not owning it" the very essence of a short sale?

& was it the SEC that limited the trading in Oil Futures?

It proves once again that the government's concerns on moral hazard have been gagged, bagged and dumped in the trunk.

It seems to be, however, for a greater good.

If minimizing the short selling on FNM or the commercial banks can prevent a nationalization of the firms, then it ultimately protects taxpayers from suffering the losses incurred, and keeps the losses privatized.

In a parallel way, on a similar line that folks long oil are taking money from anyone with a car, short sellers are slowly taking money away from anyone who pays taxes, because the gov's now explicit guarantee in FNM makes us taxpayers investors of FNM. So if you own a car and/or pay taxes, the government's threats to regulate are ultimately benefitting your pocketbook.

I disagree with free-market manipulation as much as the next guy... although in this case... if it prevents and protects my tax dollars from being tossed away on bad bets, then maybe it's okay this once.

The concern with "naked short selling" relates largely to the potential for failures of broker-dealers if, after allowing client short positions to be taken, if the stocks then go up. If they have already borrowed the shares, there is less concern because the trades are in a way hedged. If they have not borrowed the shares, if the client blows through their margin cushion (as the shares go up) and can't or won't meet a margin call to maintain their short position(s), then the firm is on the hook if they have not borrowed the shares - particularly if a "short squeeze" develops which it might.

Given the extreme upside and downside volatility of FNM, FRE, C and some others; and the possibility of an unspecified Fed rescue - the SEC policy is not unreasonable. If the Fed has to rescue FNM or FRE they may opt to do that via stock purchases to stabilize the entities from the top down, and it would be truly absurd to have the Fed wipe out 'x' number of brokerage firms as, hypothetically, it rescues FNM or FRE via stock purchases.

You may have heard the term "bucket shop". That term comes from the early 20th century when some brokerage firms accepted, and confirmed, orders from clients without actually executing them with real securities. That was called "bucketing" because the positions were maintained in the firm's "bucket" (but not with real securities). Naked shorting is basically a variety of bucketing but on the short side.

If things are at a point where the Fed may have to enter the market to buy shares of FNM, or FRE to make good on the implied guaranty on those firms' debt, there is no question that short bucketing needs to be stopped before the Fed enters the market, hypothetically, and wipes out the subject bucketers. bucketeers ? It's not nice that the SEC has to clear the way for potential Fed action, but the situation is no joke and better that than being unprepared.

Matt Lechner - CFP, CRPS, CIMA, FRM
Chairman - WSSIG, the Wall Street Special Interest Group

Your story is right on.

The sad part to this short covering rally that was created by the fed is that some people are buying into the false sense of reality that the banks are cheap now and a good investment and that the worst is over.

How can anyone pay these horrific usless CEO' s anything more than a few hundred grand per year.

Any Moron can run an organisation into the ground.

I am so tired of these celebrity CEO's claiming to be Gods on one hand (I am worth millions per year) and on the other well we are not responsible for results "we just do not know what is going on." The later is the truth, they are not operating people at that level, just figure heads, and not hard to replace.

American public does not understand that CEO's and Directors are all in the same club. We all want to be in it, but it is just a rich persons club, not based on performance, Lets scratch each others back is the club name. No CEO is worth more than 2 million per year not a one, there are thousands of good business leaders in this world, thousands.

Very. very good post Peter.

Why doesn't the SEC just go ahead and ban stock selling? Only insiders can sell! ;) Zac