It's about fundamentals, not confidence...

The normally quite good The Register has an article on naked short selling this morning, apparently a lone journalist has been cooking the wikipedia article on short-selling for a while, and someone was forwarding this around this morning.

Which reminds me to say again:

• The shorts did not cause this debacle. Shorts can reveal weakness in a company's balance sheet, by putting its stock under pressure, but if a company isn't undercapitalized, over-leveraged, and with a fundamentally deteriorating balance sheet, short sellers won't threaten the health of the company. CEOs are jumping on the financial crisis as an opportunity to get rid of short sellers, who keep them more honest than they would like to be.
  
• The CRA didn't cause this debacle either. More than two-thirds of the bad subprime lending was done by institutions that are completely unaffected by the CRA. People who already disliked the CRA are trying to use the financial crisis as an opportunity to get rid of the CRA.
  
• The GSEs didn't cause it either. Although Bush did announce that a priority of his second term was to increase minority home ownership, and the GSEs did buy an awful lot of dubious loans, companies like Countrywide are the ones who came up with bright ideas like selling interest-only loans with delayed interest payments to people with no visible income and credit scores below 600. The people who are trying to blame it on the GSEs are trying to use the financial crisis to get rid of the GSEs, because they would like to be get rid of competition.
  
• The Gramm amendment, which kept financial derivatives out of the purview of regulators who regulated the financial industry, did cause a lot of this mischief
  
• The SEC choosing to relax capital requirements on the largest investment banks did cause a lot of mischief
  
• Greenspan holding the Federal Funds Rate below the real rate of inflation for years in a row did cause a lot of the housing bubble
  
• Massive overleveraging by financial institutions (both the iBanks and insurers who ought to have known better) did cause a lot of mischief
  
• Risk rating inflation by Moody's and Standard and Poor's did cause a lot of mischief, because that allowed a lot of people to buy mortgage-backed derivatives who had no business buying them, and allowed a lot of people to cook together derivatives that were much, much riskier than anyone had really done the math on.
  

And the world markets are sucking right now because the world economy is contracting, and has been contracting, as much as the Bush administration and the McCain campaign have desperately been trying to convince everyone that everythig was just fine. Until the planet has a chance to pay down a lot of the debt that we've gotten ourselves into, the markets are going to keep sucking, because our spending is going to keep sucking. The Bernanke Bailouts should, hopefully, keep the US banking system from going under, but they're not going to change the fact that we've been running too much of the economy on money that has been borrowed from too far into the future.

This wasn't even caused, for the most part, by unchecked Greed, just unchecked Stupidity on the part of people with the ability to borrow really fearsome sums of money, and a political system that would rather create an asset bubble than live through a cyclic recession.