Thursday, March 02, 2006

The Journal Stands Up for Free Markets

The Wall Street Journal editorial page today weighed in eloquently on the SEC's subpoena-frenzy, and also ripped to shreds the hysteria that has arisen concerning short-selling. Ditto for an editorial yesterday in the New York Sun, which made much the same points.

The Sun and Journal both recognize something has been overlooked by the SEC in its eagerness to please the anti-shorting cult: the free markets -- not an evil cabal of short-sellers -- is what makes stock prices fall.

As I pointed out yesterday, crummy companies have long used short-selling as a scapegoat for their own failures. Sure, stock prices can be manipulated downward. It happens -- about once in a blue moon, while upward stock manipulation is an immense, recurring problem, the subject of hundreds of regulatory actions and indictments. The anti-shorting crusade wants regulators to wear themselves out chasing after shorts, so that the daily plague of upward price manipulation is allowed to fester, unhindered.

The anti-shorting con men have succeeded handsomely. The SEC subpoenas, and the passage of Regulation SHO, are an example of their malignant power and influence. I explore their "Baloney Blitzkrieg," in Wall Street Versus America, and in recent days I've described their smear campaign against journalists. See this item and this one.

The leading anti-shorting website, which was promoted by's screwy CEO Patrick Byrne on CNBC yesterday, exploited its five minutes of fame yesterday with a cartoon libeling Marketwatch's Herb Greenberg with a cartoon showing him in prison garb. This kind of infantile feces-tossing is typical of the shorting cult's grimy tactics.

The anti-shorting cult doesn't want free markets. They want freedom -- the freedom to sell stocks in cruddy companies, and smear and bully critics like Greenberg, with as little government interference as possible. But when these same stocks decline, they want heavy-handed regulatory intervention.

The absurd Regulation SHO is the anti-shorters' handiwork. It is based on the proposition that extended "fails to deliver" of securities are bad. Yet regulators, including the SEC, have long insisted that whether a security "fails" or not doesn't hurt investors one bit.

The leader of the anti-shorting cult, Byrne, is a living example of the hypocrisy and intellectual dishonesty of this position. Byrne, when not making a fool of himself on nationwide TV, engages in inconsistent political posturing and at one point called himself a "libertarian."

In fact, he wants the government and court system to do his job for him, and improve the stock price of He may actually believe the rubbish he has been spouting that a conspiracy of shorts has depressed his company's share price. The problem, of course, is not short-sellers but that isn't profitable. No amount of suing and TV appearances and journalist-bullying is going to change that.

Byrne's dad, former GEICO chief executive John Byrne, is clearly embarrassed by sonny boy's televised antics. The Toronto Globe and Mail reported today:
While the fight rages, Mr. Byrne's 74-year old father, John, who is a director of, is getting a bit impatient. In an interview yesterday, John Byrne said he has every confidence in his son but added: "There may be something to this, I don't know whether there is or there isn't. I wish he would just pay attention to just running his company. That's the problem with the world today, sons don't do what their father's tell them to do."

I don't know if that's a problem. Patrick Byrne's problem is that Overstock is losing money. The SEC's problem is that it has allowed its enforcement and regulatory agenda to be influenced by a screwball CEO and the nuts of the anti-shorting conspiracy cult.


  • Speaking of anti-shorting nuts, take a look at the anti-Semitic comment to this item from a prominent anti-shorting conspiracy activist named Darren Saunders, a former penny-stock pusher who was one of the anti-shorting crackpots who testified against Bradley Abelow in Trenton last week.

    Clearly, as Jeff Matthews once observed in his blog, there is an anti-Semitic tinge to aspects of the anti-naked-shorting cabal. The saner anti-shorting conspiracy theorists might want to take a hard look at the creatures crawling through their movement.

  • Other good comments on the anti-shorting hysteria are available here, from Houston attorney Tom Kirkendall's blog, and here, from Ideoblog. Also, Loren Steffy clarifies his column on the short-selling nonsense and makes some keen observations.


Wall Street Versus America will be published by Penguin USA on April 6.
Click here for its listing and here for more information on the book, from my web site.

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