Let's Kick 'em when They're Down

I spent much of yesterday reflecting on the moves by the Germans to ban the short selling of European government bonds, credit default swaps, and some German financial securities.

The immediate reaction of most market participants, in addition to the somewhat chaotic nature of the markets in the face of uncertainty was to decry the ban outright. The basic explanations were along the lines that the invisible hand of the market will always find a way to be exercised, even if inefficiently bound. Furthermore, risk premiums will rise, liquidity will evaporate and regardless of all this European governments are going to require massive funding over the coming months and years and to do that they will need functioning markets.

Now I appreciate all of these comments and agree that there will be massive borrowing programs that will require buyers. But it is one thing to refrain from buying; it is another to actively try and force an issuer to its' knees.

I am not suggesting that certain European governments don't have serious problems to address if they are to avoid insolvency. I am asking however if it is really in the best interest of the European, or Global social structure for individual traders, or, as I have heard reported, for groups of traders to clandestinely co-ordinate their attacks on chosen names such as Greece.

They claim to do so under the guise of bringing truth, transparency and market discipline to the Greek situation. A noble cause. But at what cost, and to whom? It is patently clear that severe austerity measures will have to be instituted. It didn't require Johnny Shortseller to bring that fact to light. Crushing Greek bonds doesn't help Greece unless one thinks that kicking someone after you have knocked them to the ground is constructive.

What Germany is trying to do, as was the aim of the 750 billion Euro support package announced earlier is an effort to buy time and take pressure off the EU economies. The breathing room they are trying to create has a severely limited lifespan. Shortselling is not the cause of Greece's/Europe's problems- it just exacerbates them.

The sooner the countries under pressure understand, at a governmental but also at a populace level that severe austerity measures will have to be endured the sooner this financial crisis will end.