Ultra-Short ETFs Could Cost Taxpayers Extra Billions

Ultra-short exchange-traded funds are killing the financial system, Cramer said Monday, making it harder for Washington to stabilize the banks. Even worse – they’re upping the bill for taxpayers.

That Cramer’s against these ETFs, and the UltraShort Financials ProShares in particular, is no secret. They help short sellers sidestep margin rules and put enormous downward pressure on the financials. And they don’t even perform as expected. The index the SKF tracks is down 14% over the past three months, so you’d figure an ETF that double or triple shorts that index would offer great returns, right? Wrong. The SKF is down 28% over the same time period.

But Cramer’s latest complaint is that unbridled short selling of banks makes it virtually impossible for the government to prop up this industry. There’s no chance to separate the good institutions from the bad. And the shrinking share prices make it harder for banks to raise private capital, thus boosting how much taxpayers have to contribute to get this sector back on its feet.

The financials are all about confidence, Cramer said, and the government is working hard to reestablish that trust. But the SKF and funds like it destroy any faith investors may have left, shoving the markets in the wrong direction.

Strange then that the SEC continues to allow the SKF to exist, given the damage it causes. But possibly even more shameful, ProShares’ continues to create these funds. The self-described “world’s largest manager of short and leveraged funds” is enabling market manipulation, helping to destroy the financials system, and, as a result, making it more expensive for the Treasury and the Federal Reserve to rescue the banks that deserved to be saved.

“If you want to get outraged about something,” Cramer said, “this should be it.”

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