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Von Aldo
When In Doubt, Blame The Shorts

When In Doubt, Blame The Shorts

napoleon.jpgGovernment officials and investors of all kinds over different epochs have hated short sellers. Peter Lynch, the great Fido fund manager, likened it to "borrowing with criminal intent." Napoleon called citizens who were shorting French government securities were committing treason. And so it goes . . .

Yesterday, the SEC said it wants to make it harder for investors to sell stocks short. As Floyd Norris of the New York Times reports this morning, the SEC has dusted off an old idea --- the "alternative uptick rule" --- that would require that a short to put his trade on at a price higher than the last different price. But that is tough to figure out, since all trades would have to be filled at a given price before you could short at a higher tick. And some trade reports are delayed for 90 seconds, given they are not always traded on the NYSE.

This whole "let's-kill-those-evil-shorts" thing is silly. For one, last September when the SEC put a prohibition on shorting of 799 financial companies, the financial stocks still fell. (The ban had other negative consequences.) Besides, most agree that short selling has a healthy effect upon capital markets (shorts buy when others sell, and sell when others buy). And most of all, shorts have been blamed for nearly every financial catastrophe known to man. The Great Crash was one --- and out of that witch hunt on shorts the SEC was born. Congressional investigators realized that it wasn't the shorts who caused the crash, it was lack of disclosure and transparency. You can complain about bear raids and etc. But certainly there must exist some countervailing force against Wall Street's bullish PR machine, the machine that often drives huge speculative assaults on the investing masses.

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