Follow-up letter to John McFall MP

9^th February 2009

 

Mr John McFall MP,

House of Commons,

Westminster,

London  SW1A 0AA

 

Dear Mr McFall.

Further to my letter of 13^th January, I am pleased to see that it finally seems as though politicians and regulators are waking up to the danger posed by short-sellers and hedge funds. I welcome the proposed new rules to force disclosure of short positions across the entire UK stockmarket, even as I am disappointed that the FSA has ruled out a complete ban on the practise of short-selling.

In my view there are only two groups of people with a legitimate interest in a company’s share price: those who already own shares in that company and those thinking of buying shares in that company. Why should a third party with no interest in buying shares in a company be allowed to affect that company’s share price by selling what they do not own - and, in the case of naked shorting, have not even borrowed? To listen to hedge fund managers, one would think that they were doing the markets a favour by selling stock short and creating, as they would have it, ‘liquidity’: as if what they were doing was not – as in fact it is – about manipulating the share price of companies and naked greed.

Shorting is speculation, pure and simple: and we all now know where rampant, ill-informed speculation can lead, whether it be shorting shares or trading in exotic financial derivatives. If the world’s financial markets are ever to return to some semblance of sanity and normality, a fundamental re-engineering of processes, practises and risk management will be required. I cannot think of a better place to start than an outright ban on short selling.

I saw a report in The Times on Saturday (http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article5679626.ece) that many fund managers are reacting angrily to the proposed new disclosure rules. The obvious question to ask is: why? If short-selling is perfectly legitimate and above-board – as hedge funds and others claim – why should they or would they worry about being forced to disclose their short positions? If, on the other hand, shorting is – as I and many others maintain – immoral, unethical, highly dangerous and should be illegal, then one could understand that they would have concerns.

If short-sellers are forced to declare their positions across the entire market, only then will the full extent of their manipulation become apparent. That is why so many of them are so worried.

In my view short-selling should be banned, immediately and across the entire market. Power and control should be given back to the pension funds and investment funds who manage the wealth of the many; not given to the few to make obscene profits off the back of those who prudently save. Such a recalibration will be required if we are to avoid the events of the past two years or so ever happening again: why would the Labour Party not do so now, re-establish that it is on the side of the working family against the spivs and the speculators, and avoid a catastrophic wipe-out at the next general election?

Yours sincerely,

 

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xxxx xxxxxx   

 

PS. I attach a copy of a cartoon which appeared in Sunday’s Observer magazine. If even the cartoonists have woken up to the utterly ludicrous nonsense of short-selling, why have the politicians yet to act?