RtS, AMEN! >They won't arrest the hedge fund managers that have been illegally naked short selling. They won't punish those who were responsible for allowing money to be lent to people who could not truly afford one of your vehicles for sale much less a house. They will make it easier for stocks to rise without any real fundamental reason for the rise.<
Banning legal short selling is a smoke screen to divert attention from the management of financial firms which are in trouble.
Re "too big to be allowed to fail": with BofA acquiring ML won't they also be too big to fail? With all this consolidation going on, soon we'll have more financial companies "too big to fail". This is the opposite of what is needed: many companies which are too small to save from their mistakes.
PS: Heard on the Street
Get Shorty: Regulators Clamp Down
By PETER EAVIS
online.wsj.com
Panic is ugly.
And nowhere is it uglier than in emergency moves by regulators to restrict short selling, trading that lets investors profit from a stock's decline.
[SEC chairman Christopher Cox]
SEC chairman Chris Cox
Indeed, by targeting short selling, the Securities and Exchange Commission and the U.K.'s Financial Services Authority could prolong the agony for financial stocks.
The FSA has banned shorting financial-company shares until January. The SEC could go the FSA one better, banning short-selling for all stocks.
Regulators are scared by recent market events. They are going down this road because they want to arrest the rapid decline in certain bank shares. The assumption is that short sellers have mounted bear raids on companies that live or die by confidence, stoking marketwide fear.
But targeting an integral stock-market activity, such as short selling, carries risks. Short selling is an important risk-management tool, allowing investors to hedge their long positions.
Clearly, investors will come back into bank shares when the prices are attractive. They will feel more comfortable doing that if they have a full set of tools to hedge those bets, including the ability to short. A shorting ban also could cause havoc for large swaths of the derivatives market, such as stock-index futures.
The antishorting moves are dangerously all or nothing. If bank stocks continue to fall, it means short selling isn't to blame. But that might at least persuade regulators to focus on the fundamental problems dragging down valuations.
Write to Peter Eavis at peter.eavis@wsj.com
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