The Fed is Has Become Impotent

Posted on July 15th, 2008 in Daily Stock Market / Economic News - The Real Story, Mr Mortgage's Personal Opinions/Research

They always say you can’t fight the Fed, and many times in the past year that has played out. As a matter of fact, Bernanke is on TV this morning, and his testimony helped to stabilize the market. Then, the SEC’s Cox short-selling announcement, which I do not really believe is new news other than certain trading protections for Fannie and Freddie, caused a rally.

The question is, how long will the rally last or will it end like yesterday’s pump and dump? Barry Ritholtz of whom I am a big fan, published this chart yesterday on his blog. It shows how quickly the market is become immune to the Fed’s rhetoric and how managing expectations going forward in order to control volatility in the financial markets may prove difficult for them. – Best Mr Mortgage  <>

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14 Responses to “The Fed is Has Become Impotent”

  1. We have fallen off a cliff in slow motion. No person or entity, including the Fed, can reverse that objective fact.

    We have fallen off a cliff in slow motion.

    Tony

  2. Cut the head of this monster. Kill it before it eats the whole country. This parasite is killing the USA and the world. And these people want more power. Talk about serfdom. Personnally I think the place is runned by vampires and bloodsuckers. 1,8% inflation in one month !

  3. The Fed has become irrelevant.

  4. Their problem is simple. You just can’t continually LIE about the safety of the market, while banks and lenders simultaneously explode all around you.

    The TRUST is gone in the FED, and the Government to solve this problem!!

    Socialism for the Rich isnt going to work.

  5. The masses are slowly gaining strength!!! By November a GROUND SWELL of FERVOR SHOULD EXIST!!!

  6. The measure won’t work but it proves how crazy people in Washington are !!!!! The next step is banishing physical gold, and currency control like in the ex-USSR. What the hell is goig on with their demented brains !

    GET A HOLD OF THIS ! What’s the next step ? These bastards don’t believe in free markets. So from now on, you will not be able to protect your investments by shorting stocks that are overvalued. George W. Bust and his gang are really a bunch of fascists! This new is a bad as Lierberman that suggested banishing buying of commodities. You should be real scared of the bum in Washington, may they be Republicans or Democrats.

    ———————————————————-

    Short selling banned for brokerage stocks, not mining stocks

    Submitted by cpowell on 02:47PM ET Tuesday, July 15, 2008. Section: Daily Dispatches
    SEC Curbs Shorting of GSE Stocks,
    Considers Limits for Wider Market

    By Kara Scannell
    The Wall Street Journal
    Tuesday, July 15, 2008

    WASHINGTON — The Securities and Exchange Commission announced an emergency action aimed at reducing short-selling that targets Wall Street brokerage firms as well as Fannie Mae and Freddie Mac, and will immediately begin considering new rules to extend new requirements to the rest of the market.

    SEC Chairman Christopher Cox said the SEC would institute an emergency order requiring any traders to pre-borrow stock before shorting Fannie Mae and Freddie Mac, the embattled government-sponsored entities that own or back more than half the nation’s mortgages. It would also apply to the stocks of Lehman Brothers, Goldman Sachs, Merrill Lynch, and Morgan Stanley. The order is a near-term fix and will expire in 30 days.

    Mr. Cox said the SEC “will undertake a rulemaking to address the same issues” across the market.

    The move will likely limit short-selling for the two mortgage entities, which have seen their stock prices fall sharply in recent weeks. Wall Street has been calling for the SEC to address short-selling, which some believe is contributing to market volatility and could be used to manipulate shares of financial stocks.

    It comes as short interest, or the amount of outstanding short positions, is at an all-time high for NYSE Euronext-listed stocks.

    Short-selling, a legitimate trading strategy geared to profit from falling stock prices, has long been a lightning-rod issue, so changes that cover the entire market will likely be hotly debated. Companies have complained that short-sellers target their stocks with the purpose of driving them down, while short-sellers have been credited with identifying a company’s true market value.

    Under current rules, a short-seller must locate shares to borrow, which are later replaced with stock bought at a lower price. Some market watchers have been concerned that traders were borrowing the same shares from the same lender over and over, and driving down stock prices.

    Under the emergency order, traders will be required to borrow the stock and the lender would then take it out of the market and not allow other traders to use it to satisfy requirements that they’ve located stock.

  7. “Growth and inflation pressures are growing.” Bernanké. What a freakin clown ! 1,8% in one month. Annualize this.

  8. According to many, this “new rule” to stop naked short selling is ALREADY A RULE!! Apparently, the SEC just hasn’t been doing their job!! interesting………

  9. Just keep pissing off investors and especially foreign investors and at some point the lid will blow completely off this mess. What happens when at some point (sooner rather than later) the powers that be (China, Russia and the Middle East) slow down their exposure to the dollar and lesson there appetite for more American paper?

    All HE&% will break loose is what will happen…

    In other words unless or until Mr. B. and has merry band of thieves get their act together we are heading for much more peril than most can even begin to imagine. Keep that dollar falling and inflation climbing and it will not end pretty. They need to raise rates and stop all of this silly “Bail Out” talk immediately.

    LET THEM FAIL!!! ALL OF THEM!!!

    The American people are also getting a tad restless and at some point many will start speaking and acting up. A good barometer of this is the fights that broke out at IndyMac yesterday, while the true enemy was left alone inside. That will change at some point and there will not be a good ending to that show.

    The Fed has made such a mess out of this in their efforts to keep the economy moving. While the idea sounded pretty good in theory, it didn’t work. You can not artificially stimulate a broken economy. You cannot delay this any further and in trying to do so they are making it worse and worse. The good old days are over and the sooner everyone understands that and starts moving policy in a direction that shows that we understand that, we will just erode the economy further and further.

    Get the L3 paper marked to market!

    Raise interest rates by 1.0 BP immediately!!

    Let these damn companies start failing like they should!!!

    Stop lobbying for “Bail Out” packages that fall on the backs of the Tax Payer!!!!

    Let the damn FREE MARKETS self correct and they will, all by themselves for crying out loud!!! UGH!!!!!!

  10. The next step for the SEC. Road to banking dictatorship.
    Be very of what will be next.

    In USSR, they could put you in prison for 20 years for selling the rouble and smugling in or out of the country.

    Make it illegal and criminal to buy silver and gold.
    Make it illegal to selling US dollars.
    Make ir illegal to critizise financial institutions.
    Make it illegal to critizise the FED.
    Make it illegal to access your funds at the bank.

    Are Bernanké, Paulson and the Congress fascist ? All the signals are in place for the establishment of a fascist and national-socialist state in your country. All is in place.

  11. Oh yes you can lie Carl.
    You can lie lie lie.
    Go ask that to Wells Fargo and Warren Buffett.
    No more nice guy that Warren. I don’t believe the numbers.
    Go ask that to the Labor Department.
    Go ask that to Dick Cheney, Collin Powell, and George W. Bust. Go ask that to bulble television.
    Con men everywhere. Paranoid. You have to be.
    The list of liars and psychopaths and sociapaths is infinite. And the worst is that now people expect it and accept it. I just hope thes bastards more Indymacs on their hands. It’s the ONLY thing that will change the situstioné

  12. Situation. Get your money out of the banking system.

  13. SEC Short-Sale Rule Gets Negative Reviews
    Banks Not on List
    Fear They’re Now
    Even Bigger Targets
    By KARA SCANNELL
    July 19, 2008; Page B1

    WASHINGTON — The Securities and Exchange Commission’s new rule designed to limit certain negative stock bets is set to start Monday. Already, a political backlash is brewing.

    Last Tuesday, the SEC said it would tighten short-selling rules for 19 financial firms, including mortgage titans Fannie Mae and Freddie Mac, by requiring traders to “pre-borrow” stock before initiating a so-called short sale. The SEC said it had concluded “there now exists a substantial threat of sudden and excessive fluctuations of securities prices generally” that could affect orderly markets.

    Shares in financial stocks on the list soared, in part because of the SEC’s move, prompting a chorus of complaints from firms that weren’t included, many of which have been equally battered in recent weeks.
    [Short]
    Getty Images
    SEC Chairman Christopher Cox

    In a short sale, a trader borrows stock and then sells it, in hopes that it will later fall in price so it can be repurchased at a profit. SEC Chairman Christopher Cox has insisted he isn’t opposed to legitimate short selling — only “unlawful manipulation through ‘naked’ short selling that threatens the stability of financial institutions.”

    In a letter to Mr. Cox, the American Bankers Association, a trade group that represents the interests of 8,500 banks, said it fears short sellers will now focus on banks not covered by the new rules, many of which are already big targets of short sellers.

    “The emergency order could further exacerbate a loss of confidence in the safety and soundness of this country’s banking industry,” the ABA wrote, as it called for an expansion of the order to including stocks of banks and bank holding companies.

    The Financial Services Roundtable, an organization that represents 100 of the largest U.S. financial companies, also asked the SEC to extend the order. It wants to have all financial-services companies covered in the second week.

    A SEC spokesman said the agency doesn’t comment on letters, but said it will collect all of the comments as it moves forward with its decision-making. Mr. Cox previously said the emergency order was a preventive step aimed at restoring market confidence, and stocks were chosen based on which firms had access to the Federal Reserve’s lending facilities.

    The SEC order can be in effect for as long as 30 days. It’s unlikely it will make any amendments to the emergency order to include stock of these other firms, a person familiar with the matter says. However, the SEC said it is considering extending the protective measure to all stocks that trade in the U.S. at a future date.

    The list includes major Wall Street brokerage firms, banking titans J.P. Morgan Chase & Co. and Citigroup Inc., as well as several non-U.S. banks.

    The emergency order says traders need to lock up, or pre-borrow, stock for future delivery before they execute a short sale, or bet the stock will drop. The SEC says that will “eliminate any possibility” that the markets will be disrupted by naked short selling, which occurs when the trader never borrows the stock and then “fails to deliver” it to the buyer within three trading days.

    On Friday, the SEC said market makers wouldn’t have to pre-borrow the stock, but they would still need to deliver it within three days.

    These “fails to deliver” can occur from clerical errors, and the SEC says they are often resolved within a few business days. But they can create downward pressure on a stock price, and when not covered over extended periods, could be a sign of abusive short selling.
    [Chart]

    In 2004, the SEC created a “threshold list” for stocks that fall into this category. A stock is included if such “failures to deliver” meet three criteria: They occur over five consecutive trading days; equal 10,000 shares or more; and at least 0.5% of the company’s shares outstanding.

    Only one company, Deutsche Bank AG, is on both the SEC’s protected list and the NYSE Euronext’s threshold list. Deutsche Bank has been on the threshold list for the past six trading days; however, that may have been triggered because of low U.S. trading volume, compared with its global trading volume. A Deutsche Bank spokesman declined to comment. Because these stocks are so widely traded, it’s possible they are subject to abusive trading and the firms still wouldn’t make the list.

    Other companies that also have been under selling pressure didn’t make the cut, including Wachovia Corp. and Washington Mutual Inc. Washington Mutual submitted a letter to the SEC asking that the rule include other financial companies, according to a person briefed on the matter. Wachovia declined to comment.

    National City Corp., a regional bank that scrambled to raise capital earlier this year and isn’t protected in the SEC order, has been on the threshold list nine of the first 12 trading days this month.

    “The current universe of names is too narrow” and should include the largest U.S banks, said Kristen Baird Adams, a spokeswoman for Cleveland-based National City. She said the bank intends to contact the SEC.

    Companies have long complained that nefarious traders were abusing short-selling rules to drive down their stock prices. And over the years, many of those complaints came from small, thinly traded companies. Some of those companies were vulnerable to manipulation, but some also had weak financials and were likely to attract legitimate short sellers trying to sniff out overpriced stocks or fraudulent companies.

    Advisers to some of the large banks not covered by the rule say they are considering asking the SEC for relief, while others are concerned that being on the list could be akin to a scarlet letter.

    Charles M. Jones, professor of finance and economics at Columbia Business School, says the SEC’s move has some unhappy precedents. In 1932, the New York Stock Exchange announced that, effective April 1, brokers would need written authorization before lending an investor’s shares. “This wreaked havoc on the securities lending market, but the effect was completely temporary,” he said, because the move only added extra hoops, and didn’t prevent people from taking bearish positions if they wanted.

  14. The new SEC rule will not change NOTHING. Would Indymac shares be worth something because of the SEC rules ? Will Washinton Mutua shares be worth something, when it eventually goes bankrupt ? Absolutely not. If a bank is worth crap, naked shorts or not, it will eventually be worth crap. Crappy rules that were never respected and applied suddenly would change everything. Very funny. Stinking rotten SEC suddenly discovers that naked shorts are a problem. Wow! 🙂

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