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Thursday, August 28, 2008

Pakistan: Has Dumbest Idea, Sets Floor for Stocks

“60% of the time, it works EVERYTIME.” –Brian Fantana, Anchorman

Pakistan Sets Floor on Stock Prices to Stop Plunge (Update2): “Pakistan set a floor for stock prices on the benchmark exchange, moving to halt a plunge that has wiped out $36.9 billion of market value since April.

Securities can trade within their daily limit of 5 percent “but not below the floor-price level” of yesterday's close, the exchange said on its Web site, without giving details. The Karachi Stock Exchange 100 index capped a six-day, 16 percent slump to 9,144.93. Trading starts at 9:45 a.m. local time.”

When the wheels come off, governments quickly reveal how little they actually understand economics.

The ONE thing governments are freakishly efficient at is confiscating, re-allocating and outright DESTRYOING wealth.

No force on earth can take an entire country from prosperity to poverty so quickly and so thoroughly…

Now that there are a few stresses in the global financial system, we’ll be able to see which emerging economies are actually robust and which were nothing but hype and illusion, just riding the great global credit bubble up…

So, I guess tha Karachi Stock Exchange could stay ‘lock limit down’ with no bid for days, weeks and maybe even months because prices aren’t allowed to hit levels that would clear.

This has got to be one of the dumbest ideas ever.


Anonymous said...

Awesome - and I love the picture! Governments, especially developing governments, should learn that price controls just do not work.

Look at how badly Nixon messed up US inflation in the 1970s. He set price controls in order to "tame" inflation, which resulted in record inflation rates. Later, Volcker was forced to clean up his mess.

No wonder Pakistan's wealth dried up. Controls have a tendency to exacerbate the undesirable outcomes.


Unknown said...

It's amazing, really. Also consider that the US, which lead the world's economies (and markets) lower, is only off 20%, give or take, while China (world's stongest) is off close to 60%! We have price controls here in the US, too, but they are not so blatant. Interesting times, to say the least!

Anonymous said...

it isnt the government destroying our economy it is women broadcasters............if walter cronkite (or louis rukeyser) was reading the news we wouldnt have all these problems................................................

xcomputerman said...

It's not just Pakistan.

Nigeria just made the same dumb mistake. I was almost beside myself yesterday when I heard the news. They put a 1% floor on price moves.

The worst thing is that Nigeria's underlying economy was actually showing signs of life. All they had to do was wait for the thing to bottom. Morons.

Gabriel said...

China's stock markets have little to no correlation to the economy of China.

Most companies have a small percentage of their economy in the market place and if you ever been to the stock exchange, you won't see a bunch of professionals in the hallways, you'll see people who just finished buying their groceries there.

Many of China's major corporations are mainly funded by the government and many of which aren't even listed.

Anyways my point is don't look at that index as a indicator of the national economy.

Also, it appears what China has been doing such as increasing Tier 1 Ratio in banks from 10% to 19.5% over the last several years has started to take effect coupled with rising interest rates and letting the yuan appreciate, they have a lot more ammo to stimulate the economy.

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