If you read the rule book, "naked short selling" is not an acceptable practice, but one that the SEC has turned a blind eye to for years. I thought it was funny when the SEC didn't create a new policy but just decided to enforce an old policy preventing equities gamblers from betting on the demise of financials and GSE's. The Financials took a beating today and there is fresh blood in the water. The ban on short selling expires Tuesday night...perfect.
Naked Short Selling; USA Today:
"Short sellers bet that a stock's price will fall so that they can profit from it. They borrow shares of the stock and sell them. If the price drops, they buy cheaper actual shares to cover the borrowed ones, pocketing the difference.
"Naked" short selling occurs when sellers don't even borrow the shares before selling them, and then look to cover positions immediately after the sale. The SEC's temporary order required short sellers to actually borrow shares before selling them."
This might be the straw that breaks Fannie and Freddie's back...when they both lose 50% of the value over the next 2 weeks, Paulson will be nationalizing both entities and the repercussions will be deep and wide. Treasuries will be impacted as foreign investors lose faith in the solvency of the crap they have absorbed and keep absorbing. Once offloading begins of our Treasuries, you ain't seen a credit freeze like it before...ice-age proportions.
What does this mean for mortgages? Noting good. Let's hope for a miracle.
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