Germany Bans Naked Shorting, and Euro Tanks

Germany announced the ban on naked short selling of financial stocks, and on holding CDS on euro sovereign debt without holding the underlying bonds. So the investors are expressing their negative view by selling the currency, euro.

Let us all blame the 'speculators', shall we? That will solve any problem, won't it?

Germany to Ban Naked Short-Selling at Midnight (5/18/2010 Bloomberg)

"May 18 (Bloomberg) -- Germany will temporarily ban naked short selling and naked credit-default swaps of euro-area government bonds at midnight after politicians blamed the practice for exacerbating the European debt crisis.

"The ban will also apply to naked short selling in shares of 10 banks and insurers that will last until March 31, 2011, German financial regulator BaFin said today in an e-mailed statement. The step was needed because of “exceptional volatility” in euro-area bonds, the regulator said.

"The move came as Chancellor Angela Merkel’s coalition seeks to build momentum on financial-market regulation with lower- house lawmakers due to begin debating a bill tomorrow authorizing Germany’s contribution to a $1 trillion bailout plan to backstop the euro. U.S. stocks fell and the euro dropped to $1.2231, the lowest level since April 18, 2006, after the announcement.

"“You cannot imagine what broke lose here after BaFin’s announcement,” Johan Kindermann, a capital markets lawyer at Simmons & Simmons in Frankfurt, said in an interview. “This will lead to an uproar in the markets tomorrow. Short-sellers will now, even tonight, try to close their positions at markets where they can still do so -- if they find any possibilities left at all now.”" [The article continues.]

Here in the US, we know what happened after the SEC banned not just naked short selling but also short selling of 'financial' stocks (which included GM and IBM).

The embattled German Chancellor said "In some ways, it’s a battle of the politicians against the markets” and “I’m determined to win. The speculators are our adversaries."

Pols and technocrats vs evil speculators. Place your bets.

Gold reversed hard upward on the news, US Treasuries gained more. Euro reversed downward on the news, and it continues to tank. Right now, euro is 1.2170. When they announced the $1 trillion rescue plan, it was around 1.28. Next support is around 1.20.

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