Sushi Money

Wow.  Get ready for a wild ride with the action by the Fed bankers making a huge move in supporting the U.S. financial markets by temporarily banning all short-selling in about 800 financial companies.  The SEC is also considering a wider ban on short-selling across all markets.  And the Treasury and Federal Reserve are moving to back institutional money market mutual funds because they’ve seen so many redemptions from investors (these are the non-FDIC insured money market funds). 

“The Treasury Department and the Federal Reserve announced separate actions Friday designed to bolster the nation’s $2 trillion of assets in money market fund assets, which had come under threat from one of the worst financial crises in decades.”
“The Treasury said it will tap into a Depression-era fund to provide guarantees for the money market mutual funds. The Fed said it will expand its emergency lending efforts to allow commercial banks to finance purchases of asset-backed paper from money market funds. The central bank’s move should help the funds to meet demands for redemptions.”

So why now?  It was a timely move, and I think government leadership just finally realized that in the midst of this crisis, we don’t need hedge funds or other short-selling raiders making it more difficult for a recovery, or more difficult for a financial company to stabilize and work out their debt arrangements.  Short-selling and redemptions of cash from money market accounts was pulling the rug out from under many financial firms and banking institutions.

Technology and computer-based trading has changed the game, and markets move so fast that it’s difficult to keep up.  I believe that’s why we’ve seen these midnight bailouts or bankruptcies, and equally because of the global nature of investing transactions.  Regulators are finally coming to grips with the fact that they needed to take broad action to slow things down a bit while business and governement works things out.

Yesterday, the UK finance ministers banned short selling in their markets.  So the U.S. kind of had to follow… markets today are global in nature of course, and where might the short sellers go if they were banned in one place, but not in another?  We don’t need a short-selling magnet here in the U.S. so I say good for the Fed bankers and this decision while they work on broader plans to put a rescue package together.  And it looks like Congress may even be on board and won’t delay a rescue package. 

We’re not out of the woods regarding the larger, systemic housing and credit liquidity issues facing the nation, but at least for now the government is taking aggressive, positive action to stem the tide and give our institutions (and investors) some breathing room.  And world markets are soaring on the news (but I sure wouldn’t put money back in Russia).  It should be an interesting market to watch today, but a more interesting year.  Is this the bottom?  The turn-around we’ve been waiting for?  It just might be.

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