During the Great Depression the Government attempted to blame short sellers for the demise of the markets. Now yet again the U.S. Government (and Jim Cramer of CNBC) are trying to say that short sellers have ruined your 401K’s and IRA accounts.
The ‘blame game’ is on again with Congress trying to divert attention away from the real issues (their failures) and are again attempting to make the average investor think that short sellers are the ‘evil doers’ of the world.
Next week the Securities and Exchange Commission (SEC) will begin discussions on new rules against short selling stocks. On of the ideas being tossed around at the SEC is a circuit breaker system where if a stock declines by 10% then short selling will be ‘turned off’ for an unknown period of time. Also being discussed is bringing back what is known as the ‘uptick’ rule, but with even more restrictions than before.
Whatever the rules or methods the SEC employs, it is nothing more than an ‘attempt’ (in their eyes) to bring stability to the markets. Actually, it is nothing more than a public relations game that ‘the government is on your side’ tactics.
Last year when the Government banned short selling completely in over 900 stocks for nearly a month the end result was that those very stocks still declined even further (see ‘uptick rule nonsense‘). That is what happens when you dry up liquidity.
Short selling is a healthy part of the operation of the markets. Don’t let anyone try and convince you otherwise, for if they do then they don’t understand the function of the markets, or they are lying.
This presentation form Khan Academy says it well.
Recent Posts:
- Economic Data and Earnings Schedule for July 27 2010
- Dallas Fed Manufacturing Index – Drops to Lowest Level Since July 2009
- Economic Data and Earnings Schedule for July 26, 2010
- Is The United States Worthy of a AAA Sovereign Rating?
- Crude Oil Market Summary 7/19/2010 to 07/23/2010
- Economic Data and Earnings Schedule for July 23, 2010
{ 5 comments }
I completely agree with limiting or abolishing short sales. Selling a stock “short” is unfair, sneaky, and mean spirited. Shorting stocks is tantamount to “shorting America”. Let’s keep thinks long and up!
Dave- You completely missed the point of this article. Short sales are ‘healthy’ for the markets.
The real problem is “naked short selling” (NSS) which is equivalent to counterfeiting. NSS is not the same as “short selling”. NSS criminals need to be prosecuted. Let’s see if the SEC deals with the real problem. NSS appears to be rampant in all markets: mortgages, bonds, stocks…
By limiting short selling, the SEC is limiting the ability of the common man to prosper in a bear market in order to artificially prop up bloated stock prices that needed to come down anyway. Was Google really worth $600 a share and not the $372 it is today? Please allow markets to function freely and investors to invest wisely. We are still Americans after all.
The truth about short selling is revealed in a movie coming out next week. Stock Shock: The short selling of the American Dream
{ 2 trackbacks }