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European Regulators Pressured To Ban Short-Selling

Originally published on August 22, 2011 10:10 am
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STEVE INSKEEP, Host:

It's MORNING EDITION from NPR News. I'm Steve Inskeep.

RENEE MONTAGNE, Host:

Good morning.

MONTAGNE: Good morning.

MONTAGNE: You know, to start off, what difference does a ban on short selling make when you have much deeper structural problems among European economies?

MONTAGNE: And then it gets kind of circular because a large portion of their banks own assets that's tied up in their governments' bonds. So if there are questions about just how good those bonds are, then that reverberates back into people's perceptions of how safe the banks are.

MONTAGNE: Well, you know, just back momentarily to short selling. This ban raises comparisons to the 2008 financial crisis, because the U.S. and others did enact a short sale ban at that time. Does this put pressure on the U.S. to do so again? Are the markets related that much that they U.S. would have to go along with this?

MONTAGNE: However, it's important to note that the share prices of these banks is only one place where the stress has become evident. It's also evident in their bonds and in the way they borrow money in the money markets, and in what we call the derivative's market for credit default insurance. And these bans will only have limited, if any, impact in terms of curbing activity in those markets.

MONTAGNE: Well, you know, for the average American, this has been a whiplash week especially for those who own stocks - and many do or have their retirement savings in 401(k) plans or similar plans. Many Europeans, though, have government pensions. And even if those are reduced at some point, is the stock a whiplash over in Europe anywhere near as big as it is here for the average European?

MONTAGNE: Secondly, I know it's not much comfort, but stocks at this level are extremely cheap. So for those who have the fortitude and the time horizon, then this may actually not be at that time to own stocks.

MONTAGNE: Thanks very much.

MONTAGNE: Thank you. Transcript provided by NPR, Copyright NPR.