New Game, New Rules

Earlier this week, I was thinking about what might qualify as the five most important events in my lifetime. I came up with the following list, which perhaps reflects my personal perspective on the world more than anything else:

1. Cuban Missile Crisis (I was born a little after JFK was inaugurated, so I can’t go back much farther in time than this)
2. 9/11
3. Passage of the Civil Rights Act
4. Falling of the Berlin Wall / Breakup of Soviet Union
5. Nixon’s Resignation / Watergate

Not quite making the cut were the first moon landing and moon walk, the creation of the internet, and various other advances in science and technology.

I had wondered if the events of this week would make it on that list. While it is too early to tell, my initial gut reaction is that if the financial markets had a constitution, we have essentially just ripped it up and declared martial law. Things may meander back toward the way they used to be, but I don’t think the markets will ever be the same going forward, given what has just transpired, regardless of what the consequences turn out to be.

Many have written eloquently about recent events, but there are three posts from this morning that I wish to highlight:

• Ron Sen at Technically Speaking pulled together a “partial list of entities responsible for the financial mess” in Puff the Magic Dragon,
   
• David Merkel at The Aleph Blog outlines some of the effects of eliminating short sales in Government Policy Created too Hastily
   
• Adam Warner at Daily Options Report details some of the ways that investors can still make bearish bets, without the benefit of shorting in Quick Expiration and Bearish Bet Primer

Comments

[Jackson Cash:]

6. The day that free markets died.

2008 Sep 19 01:19 PM

[who:]

new rules? more like make it up as you go along!

2008 Sep 19 01:21 PM

[gabe borens...:]

This week'sevents have nothing to do with "ripping the constitution" if the financial markets had one.
What we have is an imposition of effective edicts and cooperation of key government agencies(Congress included) in order to prevent the market anarchy leading to global the economic implosion.
The historians will view these events as unprecedented decisions which have led to mega rally in the period ahead.
These decisions have likely deflected the misery that Americans would be subjected to if the disruptive short selling (rape and pillage )continued.
Now ,we have a chance for unprecedented market rally and impressive economic rebound.

2008 Sep 19 01:31 PM

[inthemoney:]

> Now ,we have a chance for unprecedented market rally and impressive economic rebound

Yes, I think that is the intent , to inflate another bubble to prevent the death spiral. But there are no fundamentals to support it. Even a bubble needs fundamentals to begin.
This rally will deflate soon enough.

2008 Sep 19 01:36 PM

[phdinsuntan...:]

economic rebound has to do with the real economy,
looks like and unprecedented way to get rid of red ink
assets by long index funds in an option expiration day,
time for put options now. I really cant see the short sellers
bad side, they get your stocks and they buit later,

2008 Sep 19 01:41 PM

[Aru:]

The reason they imposed ban on short selling.....they knew markets will go up on RTC rumors and provide another chance to short sellers....as all banks including regional will tumble when they take huge write downs on mark-to-market assets before selling to treasury...

2008 Sep 19 02:29 PM

[User 87982:]

u

2008 Sep 19 03:03 PM

[Pent up demand:]

"These decisions have likely deflected the misery that Americans would be subjected to if the disruptive short selling (rape and pillage )continued. "

Oh, yes, by all means. We're Americans, we like our rape and pillage at the hands of duly elected officials.

2008 Sep 19 03:03 PM

[User 87982:]

Talk about being desperate. This is an act to put off the inevitable.
I have a better idea. Why don't we ban the selling of all stocks?
Why not? It's illegal to sell certain drugs like marijuana. Of course it would just be temporary to " stabilize " the markets. I thought I lived in a free country. Today I feel like I'm in China. Where the goverment manipulates the markets and won't let you short stocks.

2008 Sep 19 03:04 PM

[jayjayjay1212:]

The US government was caught up in a losing proposition, that is choosing between a potential financial collapse or taking on an insane amount of risky debt (with taxpayer money and without their consent) by bailing out the big banks that might cause ''systemic risk'' if they were allowed to fail.

No matter what the government did, it would have faced strong criticism. The problems is in the savage capitalism system advocated by Milton Friedman. Each firm has so much pressure to exceed profit estimates that OF COURSE they will take on more risk (CEOs also get bigger bonuses when the profits are record-breaking). Had Friedman gotten his way, there would probably be no government to bail out the Wall Street fat cats, and we'd be plunged in a fear-induced negative spiral that could lead to something as bad as the 1930s.

The assumptions behind the pure market theory (RATIONAL economic agents and PERFECT information, for example) are flawed, and let's hope the government realizes that and goes for a better capitalist system like the one they have in Scandinavia.

Now the government is forced to socialize all the losses to the common taxpayer.

2008 Sep 19 04:04 PM

[Larry House:]

Did anyone else catch Cramer's doublespeak today? He has a video on TheStreet.com in which he says sell this rally and calls it "artificial." Then on "Closing Bell," (quoted on TheStreet.com) he said everyone is badmouthing the plan and calling it "artificial" and should give it a chance! Hello! He called it artificial himself and then jumped on others for doing the same! Cramer has just about lost all credibility with me. When you set yourself up as an "expert" who knows all there is about the markets and knows exactly what each investor should do, the market has a way of humbling that "expert." I think it has humbled Cramer; he may not know it yet.

2008 Sep 19 04:29 PM

[Larry House:]

Your list of personally important events is interesting. My list of events (or periods) that shaped my life would have to be
1. Cold War in the 1950s
2. Kennedy's Murder
3. Trauma of the Vietnam War
4. Watergate
5. Shuttle disaster (1986, I think)
6. 9/11.

Milestones in my life were (excluding marriage, kids, grandkids)
1. my parents got our first TV (1953)
2. we installed an indoor toilet (1958) I still had to use the outhouse!
3. got a transistor radio (1960) pocket size, man that was something!
4. bought a 1967 convertible Mustand (1969)
5. got first VCR (1983) Panasonic, weighed a ton!
6. got a Commodore computer (1984)

2008 Sep 19 04:46 PM