Paint a rumour

I think Eurythmics summarised events in financial circles best when they sang ...

Paint a rumour (watch the colours spread)
Paint a rumour (see the stock turn red)
I will tell you something (promise not to tell)
I will tell you something (promise not to short sell)

... who thought eighties pop music lyrics (slightly adjusted) would so accurately predict the state of the 2008 stock market?

Wall Street is awash with stories of rumour-mongers deliberately driving down shares and simultaneously short-selling to make huge profits. Now the US regulator (the SEC) has stepped-in. They are carrying out a huge investigation and have said to subpoened a large number of investment banks and hedge funds. In addition they have cracked down on the activity known as naked shorting (shorting, like so many other activities, is legal when it is not naked).

This has revealed some interesting differences between finance and the rest of the world.

"They'll never find them."
"Yeah rumour-mongers are so difficult to find."
"Like those rumours I spread about you having an affair with Jeremy Kyle."
[Shudder] "That was you?"
"Ummm, no. Anyway, to catch them they would have to keep all their e-mails, record all their phone conversations, keep a track of all their IM and bloomberg conversations."
"Yeah. Like investment banks do."

Yes, they do. Doing the sexy realtime instant-messanger nasty with someone in the office is a really bad idea, mostly because it's open-plan ("that's not a meeting!") but also because the conversation will be recorded (it's a regulatory requirement, and is mandatory regardless of the raunch-content of the conversation): who knows what titillations the SEC will uncover when they start going through those seized records?

This is one of the paradoxes these events raise: everyone is terrified of the strict laws that govern investment banking and yet no-one expects the regulators to ever actually do anything or catch anyone (with the exception of the most blatant of acts, the French regulator fined SocGen €4m for their rogue trader, compared to the €4.9bn he had already lost it seems the only reasonable reaction would be a Gallic shrug). If the rumour-mongers exist and there was an organised campaign to drive-down prices of particular stocks it would be undetectable with any reasonable planning, but only if the organisers expected the regulators to actually do something about it. If they take the approach that everyone else takes - it's impossible to track - then they could be in a lot of trouble ... except the regulators never do anything anyway.

The SEC's other action, to effectively outlaw naked short selling, also met with mixed responses. Some felt it was propping up a broken financial system. Others of looking after the pals. Others simply thought those shoes were ghastly and puh-lease, that suit. Naked short selling (and short-selling in general) is controversial (at least, to those who give a damn) - short-sellers have been accused of encouraging financial crises ranging from the Tulip bubble to the '29 Wall Street Crash. Whether or not it is as wide-spread or as damaging as people claim is subject to debate, but it goes to show how skewed perspectives are when an attempt to stop people selling things they do not (and will not) own is seen as unquestionably bad.

Of course it's only investment banks which suffer (or profit, according to some of the news) - and what sympathy do they deserve? I wonder if people would be quite so relaxed if it happened to them?

"I'll pay for this this."
"Thanks for the meal Laphroaig. Managed to overcome all that nonsense about the credit card then?"
"Oh yes, got to the bottom of all that trouble with the credit rating."
"What was it in the end?"
"An organised campaign of rumour-spreading."
"Really?"
"Yes. Apparently everyone was sure I was about to announce massive write-downs due to the credit crunch and an undocumented exposure to the US sub-prime mortgage industry leading to an emergency fire-sale to a UK bank, probably Barclays, for $15."
"How odd."
"I asked the regulator to investigate."
"Oh I wouldn't bother. Rumours are so difficult to track down and it was only endless financial misery, hardship and your reputation."
"But ... but ..."
"Oh come, come, don't be a baby about it. Comes with the territory. And it wasn't true, so what damage did it really do?"

I may be as mad as a beetroot (surely the maddest of all root vegetables) but the world in which I operate can also seem a little unbalanced.

Perhaps we cancel each other out? So, at work, that makes me ... sane?