Shooting the Messenger
I guess silly season is here in the financial markets now (in addition to politics where it started some time ago). Today’s latest news is that the SEC is banning short selling in many financial stocks.
This is just about the stupidest thing I’ve heard yet. Maybe they should pass a rule that stock prices are only allowed to go up while they are at it? Or just set the prices themselves?
Stock prices don’t go down because someone is short selling. They go down because no one things that the current price is a “good deal”. Lehman didn’t collapse because some folks shorted it and complained about stuff- they collapsed because they lost billions of dollars in wacky speculative derivatives and then they tried to hide those losses on their balance sheets. The system is supposed to work because you have clear disclosure of whats going on financially with public companies, and if a company like Lehman is able to book a “profit” because no one trusts them and their debt has less value, that is just an amazing failure. That we found out about it when we did was because there were some folks who were motivated to investigate what was really happening here. Unfortunately that was NOT the SEC, even though that is supposed to be their job.
So in the end we have a classic situation. The SEC didn’t do their job and let the investment banks go crazy. Especially crazy given that we should have already known after the failures of Longterm Capital (I’m reading “When Genius Failed” right now), Enron and others. The same stuff was still going on, and they let it happen. But rather than admit that they are going off and trying to blame the folks who caught on to the whole mess.
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