The euro slid into another four year low against the dollar last night as the German Chancellor, Angela Merkel, announced a temporary ban on the short selling of so-called ‘naked’ derivatives. The ban is set to run from the 19th may to the 31st March 2011, and it is hoped that the embargo will prevent mischievous investors from betting on the decline of government bonds from financially troubled countries such as Greece and Portugal.
The sale of unregulated derivatives has come under intense scrutiny in recent weeks as the full scale of the sub-prime mortgage scam was finally revealed in the US. For those of you out there without an economics degree, short selling refers to the practice of borrowing shares, selling them and then buying them back at a lower price after the shares fall. The practice has been increasingly criticised by governments because of the way the technique allows financial investment companies to make absurd amounts of money through speculative gambling, which in-turn negatively impacts upon the true value of the shares. The practice is especially dangerous when used in conjunction with government bonds, as it hampers the country’s credit rating and its ability to borrow money from global monetary markets.
In her speech to Parliament Ms Merkel said “This challenge is existential. And we have to rise to it. The euro is in danger. If we don’t deal with this danger, then the consequences for us in Europe are incalculable.” In her address the Chancellor also advocated stricter global regulations and a new system for taxing business banks and financial institutions. It is yet unknown as to whether or not other EU countries will follow Germany’s example by banning short selling. Some critics argue that the ban will do little to halt the process as the selling of derivatives has become part of the global economy and therefore require international cooperation, not isolated action.
Regulate that....
lol that’s a great blog post, nice one bro