Wednesday, August 13, 2008

Naked Shorting Publicity Stunt Expires; the World Yawns

The SEC's naked shorting publicity stunt expired yesterday, and market observers are kind of scratching their heads in bewilderment at what a joke it has been.

In the New York Times, Floyd Norris observes:

In announcing the S.E.C. action on July 15, the commission chairman, Christopher Cox, said it was needed to protect investors and banks. “Today’s commission action aims to stop unlawful manipulation through naked short selling that threatens the stability of financial institutions,” he said.

But there is no evidence that there had been a lot of naked shorting in those stocks. The exchanges publish lists of stocks in which there were large numbers of failures to deliver shares at settlement, a situation that can be caused by naked short selling or by a number of other factors.
In other words, it was a cure for which there was no disease, as Barron's has also pointed out. Bloomberg observed that the emergency rule "has failed to raise the share prices any higher than they were the day Bear Stearns Cos. collapsed." Which is shame because.... well, because, that's why. It is unpatriotic, as well as downright mean, for stock prices to go down. Prices of everything (except oil) are supposed to go up.

Still, you have to admit that this publicity stunt has had its advantages. Among other things, we are treated to the spectacle of the odious Harvey Pitt waxing rhapsodic about naked shorting on the public airwaves. Does he really think that picking up on this discredited cause will make people forget what an awful job he did during his brief, miserable tenure as the most anti-investor SEC chairman in recent history?

© 2008 Gary Weiss. All rights reserved.

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