Max Doyle SHORT VIEW
Published 25/04/2010 | 05:00
WHEN the price of shares or debt plummets, the finger is usually pointed towards malicious forces at work, attempting to profit by undermining the stability of institutions.
Who knows whether George Soros really broke the Bank of England -- but we heard cries of 'foul' in the cases of Anglo, AIB and BoI during 2008 as their share prices slid.
A trader from an investment company, bank or hedge fund can make money by selling something they don't own at a high price and buying it back when the price has fallen. This is called shorting and technology has made this practice simple. The accusations against shorters range from allegations of insider trading to bully-boy tactics.
Given the picture that has emerged from the Irish banks, it would be wrong to blame the shorters for their travails. The global banking system and financial markets have been bailed out by governments in the name of the people for the greater good. One result is a significant build up of debt on sovereign balance sheets.
However, a strong case exists for prohibiting speculative shorting during this period of financial reconstruction, particularly when shorters need a rehabilitated market to ply their trade. The battle lines should be drawn with Greece, where shorters are attempting to profit by pushing the country to default.
Shorting government bonds and forcing interest rates above 8 per cent, could result in Greek failure -- and this would trigger a much larger payout on hidden bets against the euro. Like Ireland, Greece has many problems, but allowing a small group to bully a country is also wrong.
Ireland's borrowing profile affords us breathing space. Observers view Greece as part two of the financial collapse -- or is it that the Good Samaritan has been mugged?
Max Doyle is a principal of Prime Focus Management Ltd, an Irish firm specialising in investment and turnaround of SMEs