A random sampling of the stupid.

Friday, September 19, 2008

Short-sellers, speculators, and other bogey men

Assuming you spend lots of time on the intartubes (like I do), the SEC ban on short-selling financial stocks is old news:

The U.S. Securities and Exchange Commission took what it called "emergency action" Friday and temporarily banned investors from short-selling 799 financial companies.

The temporary ban, aimed at helping restore falling stock prices that have shattered confidence in the financial markets, takes effect immediately.

You may recall that they did this a few months ago. It bounced the stock market, in particular the financials, or maybe that was the FRE/FNM bailout. Who knows. Anyway, this particular market intervention appears to be having the same effect. The S&P 500 is up 98 points (8.5%) over the past two days. Again, that could also be the governments plan to take the losses themselves.

People always get this backwards. When a bubble inflates, it's seen as the economy growing, new wealth being created everybody winning. That's a lie. When it bursts, people complain that wealth is being destroyed. That's also a lie. It never existed in the first place. And they also blame short sellers and speculators, cause hey, everybody knows that profiting off the misfortune of others makes you evil. That's why everybody hates doctors.

Short sellers make markets more liquid, and more efficient. Naked shorting is a different story (and should be banned altogether), but there's nothing wrong with regular short selling. This is especially heinous because only financial stocks are being propped up, artificially inflating their values. It won't help them raise equity, because investors won't pay artificially inflated prices.

Error rating: 3. I know you mean well, but you're hurting in the long run. Plus, the people in charge of the economy are supposed to understand economics.


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