Join the Socialist Party Join us today!

Printable version Printable version

Facebook   Twitter

Link to this page: http://www.socialistparty.org.uk/issue/550/6448

From The Socialist newspaper, 2 October 2008

UK stock markets

What is short-selling and will the ban have any effect?

THE UK Financial Services Authority (FSA) has banned short-selling on certain shares until January 2009, "to guard against further instability in the financial sector". The FSA has been joined by other regulators in the US, France, Portugal, Ireland, Australia and Russia and others could soon follow. But what is short-selling and why is it regarded as such a problem?

Fiona Pashazadeh

Short-selling, or shorting, is a practice where investors hope to profit from a fall in the price of shares in a company.

To achieve this, the short-seller targets a company that they believe is 'over-valued' on the market and borrows a number of shares from another investor (usually through a broker) for a fee.

These borrowed shares are then sold immediately at the current price, in the hope that the price will fall in the future. If this happens, the short-seller can buy back the shares at the lower price and give them back to the original investor, keeping the difference as profit.

This is yet another example of the way in which big investors use the financial markets to gamble in the hope of making huge profits. Hedge funds (unregulated, private investment clubs for the rich) are one of the main users of short-selling techniques.

When such profits can be made from falling share prices, the incentive to reduce confidence in a target company and drive down share prices is clear.

The practice is also self-fulfilling - if short-sellers are borrowing large numbers of shares and then selling them straight away on the market, other investors will fear that something is wrong with the company in question and sell their shares too, driving down the price even further.

Short-selling is widely seen as a factor in the collapse and subsequent nationalisation of the bank Northern Rock. At one point, it was reported that as much as 30% of Northern Rock shares were out on loan to short-sellers.

As worried people were queuing up outside the branches, fearing the loss of their life savings, members of the hedge fund community were drinking champagne in Mayfair and celebrating the huge pay-offs from their betting strategy.

The temptation to spread malicious rumours to drive down share prices is obvious. In March, the troubled banking group, HBOS, was the subject of a false rumour that it had sought emergency funding from the Bank of England and this saw its share price plummet by 20%. The FSA has since called off an investigation into the behaviour of short-sellers in this case, blaming 'a lack of evidence'.

As we have seen in recent days, HBOS has now been forced into a rescue deal with Lloyds TSB in order to avoid collapse. And again, the speculators were out celebrating whilst HBOS workers were left wondering whether they would still have jobs.

History

Short-selling, and indeed the banning of it, is nothing new. The first temporary ban is reported to have been put in place as long ago as 1609 and another was put in place following the 1929 Wall Street crash.

Such bans can seem as though they are having some sort of effect - as the short-sellers seek to undo their bets, they scramble to buy back the shares they have borrowed, raising the prices and, in turn, increasing market confidence.

But of course, this is short-lived. These extremely limited measures do nothing to curb the greed of the hedge funds and their super-rich clients - it is no secret that they are already looking for alternative ways to make their huge profits.

The real problems of the corrupt and chaotic capitalist system are never addressed and the freedom of the market is never challenged in a way that would make a difference to ordinary people.

The recent hugely unpopular bailouts have led governments to try and create the illusion that they are taking action to stop the profiteers doing as they please and then getting taxpayers money when it all inevitably goes wrong.

But workers will not be fooled by such measures. It is the job of socialists to put forward the alternative - a system based on democratic workers' control and management of the economy, not on the profits and greed of the few.

Why not click here to join the Socialist Party, or click here to donate to the Socialist Party.


In The Socialist 2 October 2008:


Socialist Party editorial

Market madness!


Credit crunch

Bradford & Bingley: We need real nationalisation

The bishop and the 'bank robbers'

Russia: economic crisis looms

What is short-selling and will the ban have any effect?

Short-sellers back Tories

Another nail in New Labour's coffin


Socialist Students

Student debt soaring

Lots of new recruits for Socialist Students


Global Warming

Climate change calamities: Socialist planning needed

Cuts and privatisation threaten new floods


Socialist Party workplace news

Local government pay dispute in Scotland: solid support for strike

Unison goes to arbitration - a strategy or surrender?

Union calls ballot over health pay

Unions must fight to defend Ford jobs

Lincoln - fight council cuts plan

Workplace news in brief


Socialist Party campaigns

Jean Charles de Menezes


Comment

Conditions in China


Socialist Party review

Liberty by Glyn Maxwell at Shakespeare's Globe


 

Home   |   The Socialist 2 October 2008   |   Join the Socialist Party

Subscribe   |   Donate  




Related links:

Short-selling:

triangleShort-sellers back Tories

Shares:

triangleAmazon tax halves as revenues soar - nationalise now!

triangleSocialism 2016: Putting socialism on the agenda

triangleThem & Us

triangleTUSC v broadcasters and banksters

Market:

triangle'Dazzling' Bad Art show points to socialist future

triangleObesity epidemic: end food market anarchy

triangleNasty party imploding...drive out the Tories

Profits:

triangleAirwave jobs strike

Reports and campaigns

Reports and campaigns

19/10/17

North West

Arriva North West bus drivers strike over pay

18/10/17

Democratic rights

Conference on state spies: who's watching who?

18/10/17

Leeds

Striking back against sackers' charter at Leeds Uni

18/10/17

PCS

PCS ballots members on the pay cap

18/10/17

Royal Mail

Royal Mail bosses block strike - back postal workers

18/10/17

Art

'Dazzling' Bad Art show points to socialist future

18/10/17

Council

Sheffield Labour council threatens peaceful protesters with prison

18/10/17

South West Wales

Hundreds turn out for rally aimed at removing west Wales Tory MP

18/10/17

NHS

Uprising to save the NHS!

18/10/17

Socialism

Can you donate to the Socialism 2017 appeal?

18/10/17

East London

No cuts - hands off King George A&E!

18/10/17

North London

North London hospital workers fight cuts and job losses

18/10/17

BAE

Nationalise to save jobs at BAE Systems

18/10/17

Schools

Schools "can't go any further" - stop the cuts: set deficit budgets now

18/10/17

Swansea

Socialist Students 'welcome' Hillary Clinton to Swansea

triangleMore Reports and campaigns articles...


Join the Socialist Party
Subscribe to Socialist Party publications
Donate to the Socialist Party

triangle19 Oct Arriva North West bus drivers strike over pay

triangle18 Oct Russia, October 1917: When workers took power

triangle18 Oct Tories torn - bin them now

triangle13 Oct The end of the Tories?

triangle11 Oct Nasty party imploding...drive out the Tories

triangle11 Oct CWU fights court attempt to stop national strike

triangle11 Oct The fight against racial discrimination is tied to fighting against...

More ...

triangle19 Oct Waltham Forest Young Socialists: Deaths in police custody

triangle19 Oct Swansea Socialist Party: Spanish revolution 1936-37

triangle19 Oct Cardiff East Socialist Party: Is equality for women possible under capitalism?

triangle19 Oct Wirral Socialist Party: The October 1917 Russian Revolution

More ...

Socialist Party Facebook page
Socialist Party on Twitter
Visit us on Youtube

Archive

Archives:

October 2017

September 2017

August 2017

July 2017

June 2017

May 2017

April 2017

March 2017

February 2017

January 2017

2016

2015

2014

2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003

2002

2001

2000

1999

Legal

SP RSS feed RSS

Platform setting: = No platform choice

V2