David Kirkpatrick

September 18, 2008

Cracking down on shorting financial stocks

This move by the SEC and the U.K.’s Financial Services Authority is boneheaded and ridiculous. Free markets are free markets. Bans and increased regulation on legitimate transactions are an unacceptable level of governing in our system.

Right now the United States is not truly a capitalist nation, and the GOP (if you want to count GOP-appointed commissioners) has failed our land in every way possible.

Change can’t happen soon enough.

From the link:

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.

Indeed, by targeting short selling, the U.K.’s Financial Services Authority and the U.S. Securities and Exchange Commission could even prolong the agony for financial stocks.

The FSA has banned short-sales of financial-company shares until January. The SEC is considering disclosures for short-sellers more onerous than for investors owning shares.

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 market-wide fear.

But targeting an integral stock market activity, such as short-selling, carries risks. For example, short-selling is an important risk-management tool, allowing investors to hedge their long positions.