Wednesday, September 17, 2008

Blame the Shorts Part 6

So, the evil short selling forces are to blame for the current carnage in the market? That is what John Mack, James Cramer, and cheerleaders on CNBC would have you all believe. Counterparty risk fears are to blame. In fact, market participants long credit default swaps and complex derivatives are actually afraid that they won't get paid on their profitable bearish positions! Time and again, the easy answer is to blame a short selling conspiracy. Dedicated shorts are simply not that powerful a force in the market. At least, not as powerful as James Cramer would have you believe. The pressure on the market will ease when counterparty risk eases. Maybe a statement by the Fed on counterparty risk or a joint appearance by GS CEO Blankfein and MS CEO Mack on CNBC would do more to calm the waters. Blaming the shorts is not going to cut it. This was tried with BSC, FNM, FRE, LEH, and AIG already.

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