SEC Tries To Intimidate Short Sellers

July 16, 2008 at 11:16 am  ·  Category: Business Culture and Current Events

What do I think is really going on here?  I think that regulators are very, very concerned about the collapse of the stocks of major US financial institutions and are grasping at straws as to what to do about it.

Whitney Tilson (subscription required), Founder, The Tilson Funds

Yesterday in testimony before Congress, SEC Chairman Christopher Cox announced beefed up enforcement against “naked short selling” to prevent manipulation and rumors from driving down the stock prices of major US financial institutions.  Fannie Mae, Freddie Mac and 17 large US financial institutions were singled out for protection.

For those of you who trade in your pajamas, don’t worry, you’re okay.  “Naked short selling” refers to selling shares short that you don’t have an exclusive agreement to borrow.  Apparently, the same shares are frequently sold short many times over.  This rule attempts to prevent that, allowing shares to only be sold short one time, effectively reducing the supply of shares that can be sold short.

But, as Whitney Tilson points out, what this is really about is that the financial stocks are getting crushed, taking down the stock market with them and creating a crisis of confidence, and the government wants to put an end to that.  So they are resorting to bullying and intimidation and basically saying to big short sellers of the financials: “Watch your back son.”

Posted by Greg Feirman  ·  Trackback URL  ·  Link
 
No Responses to “SEC Tries To Intimidate Short Sellers”
  • Great Call on Financials.
    I know this will sound crazy but it comes under the description of the invisible hand that guides the market.
    When we had the Long Term Capital crisis Bear Stearns was the only IBANK to decline participation in the rescue orchestrated by the FED. A decade later short sellers and fear mongers created a crisis of confidence in Bear and the FEd reaction was to let the shareholders (bear management from LTCM crisis included) eat the loss while putting access to capital in place on the same day to protect the other IBANKS from the same fate.
    3 months later as the panic worsens they protect the IBANKS and major financial firms from short sellers. This includes LEhman, a participant in the LTCM crisis.
    Somehow, a great deal of this feels odd to me. 6 months of the ability to short with impugnity. Suddenly, the climate changes. A bank (WFC) surprises the market with decent news. Shorts are constrained on the prior day. The pendulum starts to swing the other way.
    What next?

    alex  ·  Jul 16, 2008 at 6:31 pm  ·  Permalink

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