Most financial markets are taking a beating due to the novel coronavirus. In Spain and Italy, short-selling of stocks is now officially prohibited by law.
This measure is taken to reduce the chances of inciting market panic.
Banning Short-Selling is Another Bailout
For the past week or two, all stock markets have come under a lot of pressure.
It is expected that this slump will continue for weeks, if not months to come.
One way of making money during such panic-driven behavior is by short-selling.
That is now no longer possible in Italy and Spain, two regions hit hard by the novel coronavirus.
Whether this will be sufficient to artificially prop up the domestic stock markets, remains to be determined.
Fragile markets are designed to be weeded out during a crucial period like this.
By preventing short-selling, the economic strain these companies pose on Italy and Spain will remain in place after the crisis is over.
In fact, it is very likely that the financial repercussions will be more severe than those felt during 2008 and 2009.
The novel coronavirus is a different crisis, but the financial play book is very similar to the 2008 financial crisis.
Big companies and banks are being bailed out at all costs.
That has never been the right approach, but for now, it is the only action authorities are willing to take.