October 23, 2008

life in financial markets: when government manipulates equity markets

Its a ridiculous drama being enacted by the champions of capitalism. India's finance minister, P. Chidambaram was telling television news reporters today that the foreign institutional investors (FIIs) are being directed to reverse their short-sales positions. Such a step should be an anathema to free markets but when were the financial markers were every truly from cronyism. Even C.B.Bhave, who otherwise is calm and collected, is unable to resist pressure from above and comes down heavily on FIIs lending stock to each other through private contracts.
I would like to say this to market participants, investors, regulators as well as media editors/correspondents covering markets:
When the market shoots up rapidly, as it was during 2005-07, there was no clamour from you for a ban on long purchases or reversal of long purchase positions. But when the markets are going down rapidly, as it is this month, you want to ban short sales or ask for it to be reversed? You can't have it both ways. If that does make you a hypocrite then nothing much else will! It is also government-sponsored manipulation of the markets. Who will regulate the regulators?
Earlier it was the banks and companies in distress that were being shamelessly bailed out by governments and cronyists. Now, they want to bail out the equity markets.

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