What the Pros Say: Shorting Ban and Rescue Plan
More government action to ease the pressure on the U.S. financial system is in the works.
The Securities and Exchange Commission announced Friday that it is temporarily banning short-selling on 799 financial stocks, following a similar move by the U.K.'s Financial Services Authority on Thursday.
And Treasury Secretary Hank Paulson briefed Congressional leaders on plans to address the "illiquid assets" on U.S. financial institutions' balance sheets, possibly including the creation of a government facility to take on financial firms' bad debts.
Market experts and economist give their views on the latest moves to shore up the financials:
Saving the Overextended
"This is a big moral hazard," Diane Garnick, investment strategist at Invesco, said. "What are we teaching people about taking on levels of risk?"
The recent bans on short-selling will make the markets less efficient, says Robert Howe, CEO at Geomatrix.
Tackling the Source
"If this plan goes ahead then I think that this is ultimately good news," Michael Taylor from Lombard Street Research said of plans to relieve U.S. companies of their toxic assets, adding that removing the assets could tackle the source of the problem.
RTC Plan a Quick Fix
The establishment of a RTC-type company is just a short-term fix as it does not solve the systemic problems plaguing Americans, said Todd Everts, president & CEO at Wall Street Global.
After the Horse Has Bolted
"To suddenly say that you can't (sell short) because you are causing the problem, overstates what's going on here and I think that the response is a classic post-regulatory response," Chris Tinker, equity strategist at ICAP, said.
Downgrade the USA
"Totting up the numbers of Bear Stearns, AIG, Freddie Mac and Fannie Mae, and with now what we're hearing about today, on top of a budget deficit which is already over $400 billion, and it's possible to get number approaching a trillion dollars, that's 7% of GDP in an environment where the U.S. economy is very weak," James Shugg, senior economist at Westpac Bank, said. "It at least raises the question, 'for how long can we continue to regard the US government as an 'AAA' organization?'"
Failures Won't Stop
"You're still going to have bank failures, it doesn't mean that everyone gets bailed out on the equity side," Subodh Kumar from Subodh Kumar and Associates said about the proposed plan to relieve institutions of their toxic assets.
If You Can't Sell it …
"The market definitely loves it … it goes without saying that if you can't sell it, you've got to buy it," Ben Lichtenstein, president of TradersAudio.com, told CNBC adding that the rally is mainly short-covering after short-selling rules were tightened.
UK's FSA Just Buying Time?
"The FSA (Financial Services Authority) has said that they still believe that short-selling is a legitimate market activity … But the situation is so dire at the moment they're putting in these temporary measures. I suspect the FSA is buying time, they're looking for a solution longer term," Julian Pittam, managing director at Data Explorers told CNBC.
Entitled to Short?
"I think the investor community is certainly entitled to be able to short if they think that's what they are supposed to do," Joe Moglia, CEO of TD Ameritrade Holding, told CNBC.
Short Sellers to Blame?
"Short sellers where not the cause of the recent financial stock decline," Jim Chanos, president and founder of Kynikos, told CNBC.