The ban on short selling of financial stocks was lifted today and immediately, banking stocks fell. Morgan Stanley (now a bank) collapsed over 15% on rumors that an equity injection from Mitsubishi bank will not go through. Paulson said they were willing to take equity stakes in banks. Tie it all up and to me, it seems like the treasury will announce an equity injection into banks that have the most short interest! What a brilliant idea to skewer those evil rumor mongers.
The fact that the market has been unable to rally inspite of being way way oversold is very scary. I saw a panel discussion on Cspan yesterday which was fascinating. There are very smart people out there with suggestions of what to do next. Some of the things possible are
- Another stimulus package
- Another 50bps Fed rate cut
- Nationalization of banks
- Buying up subprime mortgages using reverse auctions (the Moody's economist said this and I'm not too sure how it works)
But for sure, something significant will have to be done to shore up the confidence of international investors. A sure sign of this will be the Middle East weatlh funds putting capital into the system.
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