This week, the shareholders of Citigroup, Inc (NYSE: C) have undergone extreme trauma as the stock price plunged below $5. It's hard to believe that this company was once worth $200 billion and had a reliable dividend. Now, according to the Wall Street Journal [a paid publication], the company is having an emergency board meeting today and there is even talk of selling out to another bank.In the meantime, Citi is trying to go on the offensive against short-sellers, who make money when share prices fall. The company is going to the folks at the Securities and Exchange Commission (SEC), who seem to be receptive. In fact, the SEC is trying to arrange a global regulatory response to short selling.
Of course, the SEC had a ban on short selling already for about a thousand financial services companies, but it has expired on October 8. No doubt, it didn't do much. If anything, the ban probably added to the overall volatility in the markets as well as reduced liquidity.
In other words, the move to ban short selling looks mostly like a cosmetic action and not something that will do anything about the deleveraging and the rampant fear on Wall Street.
As for Citi, it's just another sign of desperation. Let's face it, the company is paying the price for poor investments and risk management practices.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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Reader Comments (Page 1 of 1)
11-21-2008 @ 1:40PM
carllovelace said...
SHORT SELLING MUST STOP IMMEDIATELY! There is an inherant moral delima with Short Selling. Individuals and Institutions should not gain from creating, or from promulgating the demise of others. Especially by driving down the value of healthy companies for a profit. Even in kindergarten we were taught that it was wrong to profit from the intentional demise of others.
11-21-2008 @ 3:21PM
Dan Barnett said...
Moral Dilemma? Give me a break. There is absolutely no moral value to either "longing" (buying) or shorting a stock.
The fact that I feel that a stock will decline & put my money there does not impact whether or not the rest of the market will agree with me. Now when a CEO has convinced the market that he has wrecked his company and the stock will tank; blaming the "shorts" for the losses is confusing the cause & effect.
People short stocks BECAUSE they feel the stock will fall. Stock does not fall because people short them.
11-25-2008 @ 7:53AM
Thomas MacDonald said...
The destruction of our financial system through this short-selling run on major banks constitutes domestic terrorism, and has done more to defeat us from within than the towelheads ever could from without. At the very least, anyone who has lost a loved one in Iraq or Afganistan deserves to know who these perps are, why they're trying to bring us down in a time of war, and how Homeland Security can let this go so far that the President himself has to intercede to prevent them from succeeding.
1-07-2009 @ 11:55AM
Fernando said...
I wrote this in one post and will write it again here:
Short sellers do not hurt the market. In a matter of fact they help the market to control the manipulation of bringing up a stock.
And is not short sellers who start a bear market, is insiders! get it, is insiders! And do you know what an insider is?
People who know information about a corporation.
These insiders might have so much money, but they can't fight conditions! When they see that the economy is shrinking, they start selling.
And those so called bear rally's is the public who had stock and sold. They realize that they should have gotten out 10 points higher ago, so when the rally comes, they sell fast so they can cut their loses fast!
I suggest you read Reminiscences of A Stock Operator. You will read how one of the best trader ever lived recount how people blamed him for shorting so much the market, when it fact it was insiders that where selling their own shares! He just read conditions and follow the trend! It happened back then and its the same dilemma that is happening right now. Like Jesse Livermore said, there is nothing new in the market!
And one last thing. Short selling a stock is limited. You can short a certain amount before you can't short no more. But buying stock is endless. Hence all those buyers who sell their stocks trigger a faster drop then a short seller shorts.