The latest news is that the United States government is considering a temporary ban short selling.

In finance, short selling or “shorting” is the practice of selling a financial instrument the seller does not own, in the hope of repurchasing them later at a lower price.

This is an extremely serious action that is far from the first and most likely far from the last government intervention that has been made into the economy. This action, apart from being extremely serious is also, again, insane for a couple of reasons.

1. Short-selling is a normal investment strategy that is absolutely critical to how the free market operates. To summarize, the stock market depends on pressure from both the buying and selling side to find the ideal price for a particular stock. Banning shorts is like taking away one side of a game of tug-o-war… it just doesn’t make sense.

2. Short-selling is NOT the thing to be blaming for the condition of the market right now. Who is to blame? Companies and banks who ran their businesses poorly. Mismanaged organizations who got too greedy. All the actions the government is taking to save these organizations is essentially like giving all these big greedy companies one of these.

And add “-and-we’re-blaming-something-else-for-all-the-shit-you-caused” at the end of that it you’ve pretty much summarized the situation.

3. Banning short selling is only going to either create a larger problem OR delay “judgement day” as I like to call it to a later date. My best guess is that if/when they announce this silly policy is that a lot of stocks are going to FLY up. Afterall there’s no longer any downward pressure to keep them honest. In other words, the people that usually would be saying…

HEY! Don’t you think $XXX is a little too much for this stock? I’m going to short sell it and hope it goes down to what I believe is a reasonable level.

… won’t be allowed to do that anymore. The market will go nuts. Then, the underlying companies continue to perform really shittily because nothing really changed. Except now all the prices are out of wack…

Now, why is this all relevant to you ? Again, a few reasons…

1. We are on the cusp of a major financial meltdown in the United States, one that has never been seen before in history. It won’t get to be like the Great Depression, hopefully. But you should know about it and understand it. As crappy as it is to read about so much bad news, it’d be worse to not know about it and continue about your life, making life decisions without knowing this stuff.

2. With the government bailing out all - of - these - fiscally irresponsible banks, guess who is going to be footing the bill? Well, its you, and me… and your mom. Poor taxpayers. Poor us. You work so hard only to have your money spent bailing out the countless fiscally irresponsible banks out there. Those who were greedy enough to lend money at high rates to those who had no chance of paying off those debts. Isn’t the government supposed to be doing some other stuff with all that money we give them?

3. The presidential election is coming up. With the government and its actions recently becoming such a large part of my financial life [not by my choice], I hope we all take a solid look at the candidates to see what their philosophies and policies are around this area. I won’t go any further than to say that we should all make educated votes.

And with that I bid you a good night. Chris will do a post later tonight on what you should have learned this week.