Where to start? All these stories are unfolding all at the same time. Most people alive have never seen such things.
AIG no doubt drove the market today. Lehman was six times as big as Enron and WorldCom, and AIG is 50% bigger than Lehman. Yesterday when it became clear that Goldman Sachs (GS) and Morgan Stanley (MS) were last two independent investment banks left standing, the government asked the two giants to inject capital into AIG to keep it alive. When that didn’t go over so well, the fed went back to the drawing board and came up with a new idea, which was later captured in a Bloomberg article titled “Fed Said to Reverse Stance, Consider AIG Loan Package”. Originally the government said that it would absolutely not help AIG, but throughout the day AIG’s tentacles were measured and realized to stretch much further than previously thought. The news stories about AIG threw the stock all over the place today. As an example of just how turbulent the ride was, at 2:30PM the stock was trading at $2.76. At 3PM, the stock was trading at $5. That’s an 81% increase in 30 minutes. AIG is the world’s largest insurer, and unless it’s shored up, many institutions (including regional banks, as exposed by CNNMoney.com) will likely get knocked out.
Reuters released an odd article today about former chief executive of AIG Hank Greenberg leading a hoard of investors in a bid to take over AIG. I think I’ll let that one rest.
The Federal Reserve, against what everyone predicted, left interests rates alone today. The rate will stay at 2%.
When the market broke in 1937 signaling the Great Depression, the US Securities and Exchange Commission (SEC) created the “uptick” rule, which essentially stopped people from betting against failing stocks. “Naked short selling” is what it’s called now, and is when a trader buys a put for an underlying amount of stock he or she would not be able to deliver. The SEC did not eliminate the uptick rule until July 6, 2007.
Our government tried to being back a sort of uptick rule this past July and it did, in fact, help the financials rebound. You can still see the ban reflected in most stock charts, not only the financials, from July 15 until the beginning weeks of August.
Now that banks are acting more like houses made of cards than they are the good old impenetrable banks we all grew up with, the government and some analysts have began buzzing about a possible reinstatement of the uptick rule. Back in August when the ban on naked short selling was lifted off the 19 financials it protected, the plan was to create “within a few months” a sweeping rule would eliminate excessive short selling. Some, like Alan Greenspan, think this is eliminating an important side of the market, but when a bet is sure, much like oil was six months ago, people will take and take advantage of it.
The head of the SEC, Christopher Cox, announced today that the “within a few months” will probably be this week (TheStreet.com) in light of what happened yesterday and the free lunch frenzy it caused among the traders who know how to sell short naked.
I’m not going to lie; In this economy, with oil going down yet gasoline refusing to budge, the price of food through the roof, the cost of electricity forcing me to cram foods into my toaster oven instead of firing up my electric stove, and clothing being so expensive I’m at least 3 seasons behind (if not many more), I’d naked short sell a few of the stocks I own if I knew how to. But just a few, not all day and not to the point I felt sick with guilt. I wonder if anyone feels guilty. Doubt it.
I bought long into Merrill Lynch (MER) today, and added to my positions of Citigroup (C) and Washington Mutual (WM). Washington Mutual is a real gamble, but MER should be one stock I won’t have to worry about.
The Dow crossed from red to green and back again 15 times today and really rallied in the last two hours of trading to close up 141 points to $11,059. My stocks that gained today included C, MBI, MER, MTG, RDN, RF, and WM, but it wasn’t enough to have me end the day in the green, and in fact, I’m now overall up just $2.08. But I’m keeping the faith that regulations will come this week and we’ll look back on this time as another bottom.
When the top stories are no longer about the banks, people are going to start asking questions about the price of gasoline. Crude oil slipped another $4.56 today to close at $91.15, so why is gas still over $3.50 a gallon? I smell “pissed off” coming.
In late-breaking news tonight, Barclays announced it put a bid in to buy Lehman Brothers for $2 billion, and the government decided to loan AIG $85 billion.
Also in tonight’s late-breaking news, an SEC spokesman told Reuters that “The American Bankers Association said many of its members have seen precipitous declines in their stock, high trading volumes and huge spikes in so-called failures to deliver [due to naked short sellers], leading them to conclude that their stock is being manipulated. The U.S. Securities and Exchange Commission expects to issue new rules against abusive short selling within 24 hours.”
Within 24 hours. This is great news.
