Well Mark, the human species isn't exactly divided between good guys and bad guys and not between predators and grazers. There are gradations, yet some like G. Soros et al are better at what they do than others. This talent combined with a penchant for ruthless exploitation can result in some pretty serious consequences. If I recall correctly, the president of Malaysia made accusations of manipulation following a domestic economic crisis. I believe that currency traders nearly caused a world wide depression. The free market or laissez faire approach does relate to Darwinian concepts which were largely discredited following the 1929 crash. Unfortunately, the regulations deemed necessary to bring order to US markets have not been implemented internationally; and in truth, US regulations still have loopholes.
If there is a problem with shorting, it has to do with loopholes in the law and the use of same contrary to the intent of the law. Shorting seems to be here to stay and indeed represents an essential market mechanism. Distortions occur when professional shorts "target" vulnerable companies at a crucial and vulnerable stage of development. I would not advocate government "sponsorship" of certain industries but OTOH am concerned about cannibalistic attacks on our own. These may be timed in such a way as to cause the financial collapse of a company which otherwise, left to normal circumstances, would go on to prosper.
Valence has been able to fend off attacks and obtain financing although under less favorable circumstances than would otherwise be the case. Errors, committed by the company and which contributed to this, include those familiar to a start up co., e.g. too optimistic estimates regarding production and market acceptance resulting in the need for stop gap funding. Moreover, acceptance of a convertible bond deal looks to be incompetence. As all this stuff is being sorted out and the company has, finally, a crack at the golden ring, in barges the short bandits. In this case, what had been an "unlucky" co., plays its strong suite, the BOD and its new officers. The battle rages on. Many companies in this circumstance would truly be at death's door. This would be true even if they were in possession of great technology and otherwise good prospects. A boxer can win on points and lose with one blindside punch.
The point is that shorting, which morphs from a thumbs down "bet" on fundamentals to become a tool to undermine fundamentals is a system gone awry. It happens. When it does, Somebody may come in to pick up the pieces. If the technology is good, foreigners are apt to be first in line. The US suffers yet another competitive disadvantage. In conclusion, some adjustments in SEC rules and international law are needed, but don't throw out the baby with the bathwater. |
