Short Story

Where does the answer lie?
Living from day to day
If it's something we can't buy
There must be another way
--The Police

Price action of Wachovia (WB) over the past few days reflects the folly of the short selling ban. After the decree on Sept 18-19, a huge squeeze chased the shorts.

Subsequently, the fundamental news at WB weakened. Absent shorts below to cover, the stock dropped over 50% in a week's time. The death stroke today took the stock to $.01 before bouncing.

Outlawing short sales strips liquidity from the system, and increases probability of an extreme move lower.

Another unintended consequence of bureaucratic intervention.

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