Conspiracy theorists must be having a field day. German regulators have banned naked short selling on eurozone sovereign debt, sovereign CDS and shares in a handful of private companies. Germany has wanted action on naked short selling for months, and now they have acted unilaterally. But as the Economist points out: “It has made the markets think that the Germans know something bad that isn’t public.”
So let’s run with that theory. Perhaps Italians know something bad too. They have just released banks from the obligation to mark-to-market their losses on eurozone government bonds held in available-for-sale portfolios. The move is apparently designed to “safeguard capital ratios“. Isn’t that responsibility meant to lie with the banks, not the central bank? And can sovereign bonds credibly be excluded? They cost real money, and make or lose real money, just like other bonds.