Thursday, July 24, 2008

Collateral Damage From the War on Shorts

Mark Mitchell, ex-CJR Audit columnist
CJR Online's Audit column discusses a provocative issue -- how the SEC's politically motivated campaign against short selling has hurt business journalism.

The Audit, also points out that media has failed to cover a possible short squeeze in shares of the financial stocks affected by the SEC emergency order.

But it's the possible effect on tough journalism that intrigued me about thsi column. The Audit's Ryan Chittum quotes an email from a journalist saying as follows:

Any financial journalist committed to delving beyond the corporate handout knows that shorts can be great sources—they can provide all sorts of perspectives and information about a faltering company that you never would have thought of otherwise, and they’re an invaluable counterweight against all those unthinking analysts who just keep bleating “buy.” As long as you keep in mind that they have an ax to grind (though no more or less so than those on the other side dedicated to seeing a stock go up), and verify that their information is accurate, it’s very valuable for a journalist to talk to them.

And now that source of information is going to be severely crimped, because shorts will be leery of being perceived as “spreading rumors” if they give negative information on a company to a journalist. It’s already happening; this week I tried calling a well-known short I’ve spoken to in the past, to get his thoughts about the SEC crackdown, and he wouldn’t even get on the phone with me.
It's reassuring to see that the Audit is now fully repaired from the damaged caused by the pro-corporate slant of its former editor Mark Mitchell. As I've previously reported, Mitchell has found his true calling as a hatchet man for CEO Patrick Byrne. The Audit has come a long way since Mitchell was blaming Enron on short sellers and signing wacko SEC comment letters while on the CJR staff.

Meanwhile, SEC chairman Chris Cox continued his tawdry publicity campaign in the op-ed pages of the Wall Street Journal, while economist Ed Yardeni raised some sharp questions about his emergency order, including: why hasn't Cox reinstated the uptick rule?

© 2008 Gary Weiss. All rights reserved.

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