Editorial: ARABNEWS

How in the real world can anyone sell something that they do not already own?

The decision by France, Italy, Spain and Belgium to impose a ban on the short selling of shares will be approved by many well beyond the confines of those particular four countries. Indeed, it may even be welcomed within the financial markets themselves. It is an activity that has been responsible for driving down the share prices, most particularly in recent days of banking stocks. Germany banned the practice last year and inevitably responded instantly to the albeit temporary move by its four EU partners with a demand for a permanent Europe-wide ban.

In acting jointly with their decision, the four governments are very pointedly throwing down the gauntlet to the markets. It may well be, as some analysts are predicting, that their attack on this highly speculative financial trick is a turning point in the regulation of the financial markets, whose operations have now often lost all touch with underlying financial realities. This is clearly demonstrated in the financial maneuver of short selling itself. In essence, a speculator sells shares that he has borrowed from their owner in the expectation that the sale will drive down the share price, so that he can then buy the shares at a lower price, hand them back and thus make a handsome profit.

There are two key elements here, both of which are morally dubious. First of all, how in the real world, where most of us live, can anyone sell something that they do not already own own? Secondly, these are not isolated transactions. As the price of a share continues to tumble, the short sellers carry on selling shares they do not own, to buy them at a lower price. The cycle is almost self-perpetuating. Once short sellers have sunk their teeth into a target, they will continue to suck value out of a share. READ MORE