Thursday, March 05, 2009

Australia maintains short-sell ban

A devious rash of financial instruments emerged in the boomtimes, some of them originally created for legitimate reasons - currency hedging for those involved in international trade, for example - but many of them existed simply to give non-productive traders more opportunities to gamble.

Australia is said to be the last country in the world to maintain a ban on the short selling of shares - specifically, in this case, financial stock. This means speculators can't sell shares that they don't yet own in the expectation of covering themselves (and profiting) by subsequent purchases at a lower price.

A few days ago, a claim emerged that Asian financial interests were poised to take over Australian banks by forcing the price spiralling down through short selling - once the ban was removed by ASIC (the Australian Securities and Investments Commission).

That ban was due to expire, but ASIC has now extended the ban.

And rightly so. Many such practices that were of marginal at the best of times are anathema to unstable markets - which situation will be the case for some time to come. I have not seen justification for other countries' removal of that ban, but according to one Australian fund, "much of the criticism of the ban came from off-shore investors". Which rather begs the question what is to be legitimately gained from having overseas dealers indulge in short-selling Australin financial shares. (I note that the Herald's Ian Verrender has given a justification for lifting the ban - which is quite weak.)

In these volatile times, regulators are trying to promote stability and investor confidence - which they know are the only cures to the financial crisis. Probably the reason regulators are not doing more is that they have too strong a ground in the ideology of unfettered markets.

And despite the fact that this is an ideal juncture in history to redirect capital to more environmentally sustainable production, like most people they have a large part of their attention focused on the short term; until environmental crisis looms larger than financial crisis, scant action will be taken. In fact, there will be much temptation for governments to foster crisis solutions that are easy - but more environmentally damaging. Vote carefully.

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