Our free(ish) market becomes less free with the ban of short selling

A couple of weeks ago, the SEC illegalized a type of investing that makes a market what it is – short selling. Simply put, a person can bet on the market going up by “going long” and buying securities in hopes of selling them for a higher price at a later date. Long positions can be leveraged by margin. A person can bet on certain stocks going down by selling them if he already owns them. The leveraged way to bet on the market going down is to “sell short” which is simply selling stock on margin.

Going long makes prices go up. Selling short makes prices go down. This is part of “price discovery”. Most people don’t even know about short selling or they’ve been convinced to not do it. Securities brokers don’t want people to know about investment strategies that will make market valuations go down because their commissions are tied to market valuations. Their entire system is a mechanism of inflating values to further inflate values.

SEC temporarily bans short selling of companies whose price will go down

Read the official SEC action here. They are, by force of law, inflating the value of the stock market. They are also prohibiting every day average Joes from profiting from market movement. Fincancial service companies are in bad shape because they sold and promoted crap. One by one, they are collapsing and going bankrupt. Ordinarily, average people could make loads of money in short periods of time by short selling these financial service companies. This year, I’ve been one of those people until the ban.

The effect of this ban is that we all must lose money in our securities holdings, but we are disallowed from recovering it by adjusting into short positions. Meanwhile, these failing companies are being injected with billions of dollars (that we will have to pay for ultimately) and many of the people involved at the top are being handsomely rewarded. The CEO of WAMU stepped down as it collapsed, and the new CEO was given a $7.5 million sign-on bonus followed by an $11 million severance package 17 days later when his job was over after WAMU declared bankruptcy.

The people “in the club” are making money when the market builds up, and they are making money when it collapses. It is now illegal for people not “in the club” to make money when the market is collapsing. If you’re reading this, you probably aren’t in the club.

If you want to do something about it, pull your money out of all American banks and brokerages and put it into a foreign bank. This entire corrupt system is dependent on our money being in the hands of these financial institutions. Only then will we be able to restore an asset-based, honest financial system that rewards sound decisions.

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