'Mind Blowing Stupidity' Update: Whither the Uptick Rule?
I've borrowed the title language from Simon Denham, writing in the Daily Telegraph concerning the British market's ban on short-selling of British financial stocks, but the same thing can be said about the SEC's ban on shorting 799 financial stocks. Paul Kedrosky calls the anti-shorting hysteria "a fun superstition, sort of like sacrificing the odd virgin into a nearby volcano. Or tossing a supposed witch into a shallow creek."
What makes the SEC action mind-blowingly stupid is that this: if there was abusive shorting of the financials--and there's no evidence of any, not that it matters--it was because the SEC allowed it, by revoking the uptick rule.
The uptick rule, which prohibits shorting of stocks in down-trending markets, was enacted during the Depression for the express purpose of preventing manipulative shorting. It was tossed out by Chris Cox's SEC, at the same time the agency began to waste enormous resources pursuing the naked shorting hobgoblin.
Cox's effort to restrict naked shorting, while dumb, pales in sheer magnitude of empty-headedness by his attack on legitimate shorting.
No real surprise here from an agency that did nothing to prevent the financial firms from spinning out of control, and which has cut corporate fraud enforcement dramatically, as set forth in the current issue of Portfolio by Scott Paltrow.
But at least this much is clear: Chris Cox is now, hands down, the worst SEC chairman in recent history, far outshining the previous title-holder, Harvey Pitt.
© 2008 Gary Weiss. All rights reserved.