February 19, 2009
With regard to the nationalizing and general rescue of our US banks, the solution is simple. You need to IMMEDIATELY impose a ban, be it temporary or permanent, on the short selling of all financial stocks. That, and/or reinstate the "uptick" rule. The former would help financials, the latter would help all stocks and the market in general.
The problem with the capitalization of bank stocks like Citigroup and Bank of America is that the hedge funds and other speculators are short-selling the shares of these companies, causing their share prices to go down at a rate greater than others. As long as this continues, nothing good that these banks do is going to cause their share prices to stabilize or go back up.
If, for the sake of discussion, such a ban was announced today, the short-sellers would be forced to cover their short positions, and the share prices would go back up. This would immediately help their capitalization. Thereafter, the shares could be bought or sold based on the success- or lack thereof- of the banks' efforts to rebuild themselves.
Absent such a move the hedge funds and other short sellers will inevitably drive the share prices of these two banks, and then likely others thereafter, to zero. This would be a worst case scenario for taxpayers and something the government should want to avoid.
Related to this, as for nationalization, the US Government has its hands full. It does not need to be running banks. Further, the equity shareholders who have maintained faith in and lent support to these institutions, should not simply have their investments wiped put. This would just be wrong.
In closing, please seriously consider the banning of short selling of financials, and/or reinstating the uptick rule, ASAP.