Wall Street Changes Diaper After FSA Bans Short Selling in Financials

Wall Street did not get the timeout I was hoping for going into the noontime hour, but the markets did get a lifeline...from the Brits, of all people:

Short-selling of financial stocks is set to be banned in the United Kingdom under rules drawn up by the Financial Services Authority.

The watchdog is poised to announce the ban after a week in which the shares of leading financial institutions have come under intense pressure as a result of turmoil in the financial markets. Short-sellers have been blamed for driving down the share price of HBOS, the banking group that on Thursday unveiled it was being rescued through a takeover by Lloyds, its UK rival.

News of the ban comes amid a growing political backlash against short-selling, which has been blamed for exacerbating the woes of the country’s banks, and for contributing to the crisis of confidence in some of the country’s largest financial institutions. It is unclear how long the ban will last. FT

The selling this morning gathered steam after the shares of the largest custodial banks took a nose dive. Shorts began to pile on State Street Corp (STT-NYSE) in the mistaken belief their securities filings in the shares of Morgan Stanley (MS-NYSE) meant large losses in their capital position. A more likely explanation might be that their mutual funds own it, but snafus in money markets/commercial paper turned into an out and out rout as everyone shot first and bailed out of any and all financials fearing funding would dry up and back offices would grind to a halt.

AIG Bailout Has S&P Futures Ramping Afterhours

Details are sketchy, but the Fed Reserve, led by Timothy Geithner, overruled Treasury Secretary Hank Paulson and worked out a deal to keep American International Group (AIG-NYSE) alive:

In an extraordinary turn, the Federal Reserve agreed Tuesday night to take a nearly 80 percent stake in the troubled giant insurance company, the American International Group, in exchange for an $85 billion loan, according to people with knowledge of the negotiations.

The Federal Reserve and Goldman Sachs and JPMorgan Chase had been trying to arrange a $75 billion loan for the company to stave off the financial crisis caused by complex debt securities and credit default swaps. The Federal Reserve stepped in after it became clear Tuesday afternoon that the banking consortium would not be able to complete the deal.

Without the help, A.I.G. was expected to be forced to file for bankruptcy protection. NYT

An insurance company is outside of their usual regulatory scope, but anything goes with the current crop of regulators. An orderly liquidation, perhaps even a partial one, should allow the bridge loan to be paid back.

Of course, those of you short the indices might need a bailout of your own...S&P 500 futures are just under 1228 going into 8PM and stock in the new state owned enterprise is trading around $2.50 despite the potential massive dilution holders of the common stock are facing.

“Nothing is Safe” says Roubini

Nouriel Roubini is everywhere... he is this generation's Henry Kaufman, but much better than Dr. Doom, whose service on the board of Lehman Brothers is not looking...good.

Roubini was on Charlie Rose's show on Monday, evening, and made a swing by Yahoo's Tech Ticker as well.

GIve it a spin while I get some sleep....this was the longest day, ever....

VIX Over 31

Big drama in the options pits today....High Delta Sellers and VIX BVZ Trade School courtesy of OptionMonster and Group One Trading LP:

AIG: Buffett To The Rescue?

There is no joy in Mudville......but many of us will find out what we are made of today. It would appear that Lou Mannheim was right after all:

Jesus you can't make a buck in this market, the country's goin' to hell faster than when that son of a bitch Roosevelt was in charge. Too much cheap money sloshing around the world. The worst mistake we ever made was letting Nixon get off the gold standard.

Of course, the inevitable Warren Buffett rumors have started....will he get involved in the situation at AIG? We are only as strong as our weakest link, and AIG is it.



AIG stock plummets to below $9; Buffett now in rescue talks
The Insurance Insider

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