Is Tim Geithner Too Close to Goldman Sachs?

That issue was raised in an interesting video today by Chris Whalen, who runs Institutional Risk Analytics and is not a fan of the New York Fed chief.

I think he has a good point, but I view Tim Geithner's appointment pretty much the same as Mary Schapiro's-- as a done deal. The difference between the two is that, while he is definitely closer to Wall Street than he should be, he does not have quite as abysmal a track record as Shapiro. Some will argue with me on that point, I know.

A few weeks ago Tom Friedman suggested that Geithner immediately replace Hank Paulson, and I agreed with him. But that was because pretty much anyone, or no one, would do an improvement over Paulson. But that doesn't make Whalen's concern any less valid, or Geithner's answers to the Senate's questions today any less mealy-mouthed.

Not that it matters, as it is fairly obvious that Geithner is going to be confirmed.

By the way, I see that Chris Cox has resigned from the SEC, as expected. Now he can move into a Washington lobbyist or some other job more suited to his talents and proclivities. He can leave government "service," but he can't escape history (as Abe Lincoln put it), and I believe that history will show him to be one of the worst SEC chairmen in history.

© 2009 Gary Weiss. All rights reserved.

News Flash: Chris Cox Makes it Unanimous

Ever the consummate politician, SEC chairman Chris Cox admitted tonight that yes, it does get dark when the sun goes down; yes, water is wet; and yes, the SEC screwed the pooch on Bernie Madoff.

I am gravely concerned by the apparent multiple failures over at least a decade to thoroughly investigate these allegations or at any point to seek formal authority to pursue them. Moreover, a consequence of the failure to seek a formal order of investigation from the Commission is that subpoena power was not used to obtain information, but rather the staff relied upon information voluntarily produced by Mr. Madoff and his firm.

Poor dear, being "gravely concerned" and all that, particularly since this is an SEC chairman who single-handedly emasculated his own enforcement staff. Oh yes, there would have been a formal investigation launched, and action taken. Yessir! What a joke. Madoff is a psychopath, but at least he is keeping his mouth shut. Chris Cox should follow his example.

There will probably be an effort now to shift the blame to underlings, or back to Artie Levitt perhaps, but this fish rots from the head down. Enough already.

Oh please won't you go now, Mr. Chairman, and not let the door hit you on the way out?

© 2008 Gary Weiss. All rights reserved.

'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.

The SEC Fiddles While the Market Burns

Look carefully and you can see Chris Cox with a fiddle

The Dow Jones Industrial Average is down nearly 300 points -- 2.6% -- and the Standard & Poor's 500 is down over 3%. Lehman is bankrupt, AIG is bailed out, Merrill Lynch is acquired, because of a mortgage crisis about which the SEC, under its do-nothing chairman Christopher Cox, has done absolutely zippo.

So what does the aforementioned regulatory agency do while Wall Street burns like Warsaw in 1945? It issues a press release heralding regulations, effective tomorrow, targeting that great menace -- "abusive naked short sellers."

"These several actions today make it crystal clear that the SEC has zero tolerance for abusive naked short selling," said SEC Chairman Christopher Cox. "The Enforcement Division, the Office of Compliance Inspections and Examinations, and the Division of Trading and Markets will now have these weapons in their arsenal in their continuing battle to stop unlawful manipulation."

OK, but what has "abusive naked short sellers" got to do with the aforementioned Burning of Warsaw? Absolutely nothing, and the SEC does not even attempt to claim that it has, or even cite one company that has been victim of this Great Scourge.

To make this "action" even more laughable, Cox didn't take a step that actually might have had some logical basis, and reinstated the "uptick rule." But that would have upset Wall Street, and perhaps done some good, by preventing actual manipulative short selling, so Cox wasn't going to do that.

You have to admit that Cox is working hard, not to do his job of protecting the markets, but at outdoing Harvey Pitt for the distinction of being the worst SEC chairman in recent history. Pitt, a former lawyer for white collar crooks, now is a paid lobbyist for anti-shorting crowd -- mainly CEOs of small companies who want to divert blame from their incompetence.

Cox is far more competent than Pitt was at pretending to actually do stuff while actually serving corporate interests. So he issues press releases claiming to help investors, while actually carrying water for Corporate America. In this instance, the anti-shorting jihad has the full support of such champions of investor rights as the U.S. Chamber of Commerce and Washington Legal Foundation.

© 2008 Gary Weiss. All rights reserved.

Debunking the SEC's Fear Mongering on Naked Short Selling

Media coverage of SEC chairman Chris Cox's "naked short selling" publicity stunt has suffered from the usual shortcomings of SEC coverage: naiveté, credulousness, and a tendency to accept pronouncements from our toothless watchdogs at face value. Nothing really terrible, just mediocrity and lack of skepticism.

There have been, however, some reassuring exceptions over the past couple of days.

In a commentary today, Jonathan Weil of Bloomberg expertly dissects Cox's emergency order for the fear-mongering fraud that it is:

"Forget naked short sellers. The fellow who isn't wearing any clothes is Securities and Exchange Commission Chairman Christopher Cox," he said.

Weil notes that Cox's order is filled with contradictions and only serves to "deflect public attention from the government's own failures in the subprime-mortgage debacle." In an op-ed piece, Cox spoke of "distort and short" schemes while at the same time saying that the 19 stocks affected by his order have not actually been hit by naked shorting.

In other words: Boo! The SEC has presented no facts suggesting that anything like this has happened at these 19 companies, or at any other major financial firm. Meanwhile, the SEC is spreading unsubstantiated rumors that gangs of undressed, short-selling bogeymen might conspire to hurt the investing public, if left unchecked.

This isn't inspiring confidence. It's fear-mongering.

Holman Jenkins made a similar point in the Wall Street Journal today, also noting the vacuousness of Cox's action. Naked shorting, he said, involves "technical concerns -- unless you imagine that naked shorts just take the money and run and never deliver any shares at all, flooding the brokerage accounts of innocent investors with 'phantom' shares.'"

That devil theory, popular among a few conspiratorialists, was not endorsed by Chris Cox, the SEC chief who enacted this week's new rules saying that naked short selling, which was already a violation, is now . . . a violation. Instead, what we have here is an exercise in symbolic confidence-building.

As I previously noted, Joe Nocera was first on the case, and in a recent CNBC appearance set out the issues clearly: "The technical term for that [Cox's emergency order], it's 'a joke.' It's an attempt to show that they're doing something without actually doing anything."

Charlie Gasparino, in the same appearance and elsewhere, has taken the lead in denouncing the fatuous theory, being pushed by respectable commentators as well as the usual Patrick Byrne nutjobs, that CNBC was responsible for bringing down Bear Stearns.

I'm still waiting for someone to quote Cox's comment in December 1989 at a hearing on short selling abuses. It was reported in Barron's at the time, and I quoted it in Wall Street Versus America. After hearing the sorry pedigree of the CEOs blaming their misfortunes on shorting. Cox said, "Is this subcommittee being snowed?"

Today, in his desperate effort to divert attention from the SEC's crummy record in the housing crisis, Cox is the snow-er, not the snow-ee. It's time for the financial press to show a bit more historical depth and initiative in reporting the SEC's abysmal handling of this issue.

© 2008 Gary Weiss. All rights reserved.

Chris Cox Earns His Pay as SEC Chairman

A schematic model of the new rule

Chris Cox today earned his pay as SEC chairman -- proving that he is exceeded only by his predecessor from the 1990s, Arthur Levitt, at making grand gestures that actually mean little.

Today he told the Senate Banking Committee that he is instituting a "pre-borrow" requirement for short-selling Fannie Mae and Freddie Mac. The Wall Street Journal says this afternoon that this "will likely limit short-selling for the two mortgage entities." (A later version of the article backed off from that assertion.) I beg to differ.

No, what it will do is limit naked short selling of the securities -- and, as Bob Pisani points out today, there's no evidence that this great phantom menace is actually taking place in the mortgage stocks.

The SEC is imposing a "pre-borrow" requirement. What that does, as described (in a different context) in a famously indifferent SEC rulemaking called Regulation SHO, is bar short sales "without borrowing, or entering into a bona-fide arrangement to borrow [the shares]. . ."

Since shorts already have to borrow or arrange to borrow shares before shorting, this doesn't do much of anything.

The market greeted Cox's bright idea by pushing down the prices of Fannie and Freddie stocks 27%.

CNBC today asked me to appear today on the air to discuss this totally useless bit of rulemaking. I declined. My feeling is, why contribute to what is plainly a publicity stunt?

UPDATE: The SEC issued at day's end an "emergency order" and made it effective June 21 (must be one heck of an"emergency"). The order extends to all "substantial financial firms." I guess insubstantial financial firms, or substantial non-financial firms, are not worthy of inclusion in this meaningless gesture.

As Joe Nocera puts it, "this is about chasing bogeymen, not getting to the root of any real problem."

I forgot to mention Floyd Norris's discussion of a similar SEC publicity stunt a few days ago -- a Sunday press release on its jihad against "rumors":

In other words, they haven’t yet found anybody who used “rumor-mongering and abusive short-selling” to drive down the prices of financial stocks. So now they will try to find some unfortunate firm that does not have adequate controls to prevent violations, even though they can’t seem to find any actual violations.

They still haven't found any evidence -- there is no effort to do so in the bare-bones SEC release issued late in the day.

I'm not been one of the SEC's biggest fans, but I must say that I have rarely seen such intellectual dishonesty -- bordering on outright fraud, in my view -- from our supposed securities watchdogs. Unfortunately, no one in Congress seems to grasp the issues either.

© 2008 Gary Weiss. All rights reserved.

Chris Cox Succumbs on Shareholder Rights

Commenting today on the SEC's vote preventing shareholders from nominating corporate directors, The New York Times's Gretchen Morgenson says that "shareholders lost the only shot they had at firing incompetent directors."

Apart from Gretchen and AOL blogger Zac Bissonnette, the media has been comparatively silent over the SEC's capitulation to corporate lobbyists, such as the Business Roundtable and U.S. Chamber of Commerce. The latter recently embraced another anti-investor initiative, clutching to its bosom the "naked short selling" issue that is used by corporate execs to excuse their poor stock performance.

Chris Cox, very much a "politician" as Gretchen points out, is blowing with the wind -- which is an utter indifference to investor rights in the Bush administration.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Man Bites Dog: A Genuine Shareholder Rights Group

I've written so much about astroturf groups claiming to advance shareholder rights, but really pushing corporate interests, so it's refreshing to see the genuine article. This is a real man-bites-dog story.

SEC Chairman Chris Cox introduced retrogressive proposals last July that would cut back on shareholder rights, and make it harder to introduce shareholder resolutions. He actually introduced two proposals, one supposedly "pro-shareholder," but both are a step backward.

Cox is politically hypersensitive, so he probably thought his proposals would sail through without objection. Wrong.

A whopping 22,500 comment letters have poured in to the SEC to protest the proposals, spurred by a group called Save Shareholder Rights.

Here's a Kathy Kristof column that sums up the issues involved, and here is the group's website.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Patrick Byrne Confronts His Reg. FD Demons

Overstock CEO Patrick "Sith Lord" Byrne is a man of many demons, most of them imaginary, but one seems to have finally gotten the best of him -- Regulation FD.

In Internet posts over the weekend, it became clear that Byrne was being pushed, dragged, manhandled and otherwise forced into admitting that -- much as he revelled in ignoring it -- yes, there is a Reg. FD, and yes, he must make some gesture at obeying it, ancestral wealth and real or perceived political influence notwithstanding.

His weekend posts also contained -- unintentionally, as usual -- some interesting tidbits about the ongoing SEC investigation into this train wreck of a company, as well as official word that "Omuse," a lame Wikipedia wanna-be that was created to provide a cover story for in-house stalker Judd Bagley, is an absolute flop.

This rich harvest of (unintentional, as usual) self-revelation emerged in a post by Byrne on his favorite venting venue, the Investor Village Overstock message board. Seems he is not posting there anymore. Maybe.

As usual, he failed to disclose his full name and corporate affiliation and thus, for the umpteenth time, spat in the eye of Regulation FD. As I've described in the past, to Byrne Reg. FD is more of a joke than a requirement that he must obey. This rule requires that companies provide information to the investment community in a fair and even-handed manner -- not in whispered conversations or, say, posts to small numbers of crackpots on limited readership message boards.

After first acknowledging that there are indeed Reg FD issues with his posting corporate information on message boards, Byrne blurted that "the Omuse blog is still not very workable."

That's pretty amazing when you consider that this Wiki wanna-be has been up and running since February -- five months -- and had been the subject of Bagley's tireless efforts for six months before that. So here we have Byrne, in a desperate attempt to salvage this failing enterprise, announcing that he has made Omuse a collection point -- a kind of septic tank -- for his ravings and smears.

Byrne inaugurated his new policy of turning Overstock.com into a literal chamber pot by posting in toto (copyright be damned!) a recent blog item by fraud-fighter Sam Antar, and calling him "Crazy Sam."

No other wiki project--and there are many--has been reduced to attracting readers by posting personal attacks on the CEO's critics, using schoolyard epithets. You really have to search long and hard in the underside of Corporate America, starting with CEOs confined to prison, to find a corporate executive or a company quite this slimy.

Responding to speculation that he has (more or less) stopped posting on IV because of pressure from the Overstock board of directors, Byrne blurted out another goody:

. . . no one has brought the least pressure on me about my posting here (well, other than by a certain polite and proper government official, who politely and properly asked me why I post on message boards: I politely noted that the first amendment applies to me, too). [emphasis added]

It's reasonable to surmise that the "polite and proper government official" quoted above is an SEC investigator or worse. It's significant, I think, that this "official" was talking to Byrne directly and not his lawyers.

Byrne was asked to clarify the point on the Investor Village board but, in keeping with his policy of ignoring discomfiting questions, he did not do so.

(Note also Byrne's whining that Yahoo and the Motley Fool are infested with "bad guys" and "shills for powerful interests" -- Byrne-speak for "people who think I suck as a CEO.")

Sam Antar has a post today describing in detail the chain of events, and how it does suggest that finally the Overstock board has woken up.

As I observed previously, external pressure also probably explains Bagley's absence from Investor Village, and the sudden disappearance of menacing comments, including a threat directed at me, from Overstock.com's antisocialmedia.net corporate smear site.

Of course, I suppose you can believe Byrne's story that he is taking leave of IV because his precious jewels of baloney "scroll off the screen." But he can't use that cock-and-bull story to explain the fact that he has stopped using a pseudonym on his own website. That's an action he obviously would not take unless forced to do so.

In recent days, Byrne has retroactively changed his screen name on his "Take 5 With Patrick Byrne" message board from "Hannibal" to "patrickbyrne." This is how it appeared in May:



And here it is today:


Byrne likewise abandoned his Hannibal user name on Omuse, replacing it with "patrickbyrne." Apparently the wiki software doesn't allow replacing one user name with another.

The rest of the planet, of course, is aware of the Reg. FD problems presented by a CEO posting obsessively on message board, particularly under pseudonyms. At real companies with real boards of directors, posting on message boards is such a serious flouting of Reg. FD that it is a firing offense (as the CEO of a company called Medifast has learned the hard way).

Obviously Byrne is not going to be fired, as any ordinary CEO would be who acts as Byrne does, by his lapdog, sham board of directors. Still, maybe one day somebody will give him the good word about other elementary concepts every CEO should know, such as "making money," or "not hiring people to stalk your critics." Stuff like that.

It will be interesting to see if this lame backfilling will be enough to placate the SEC and if he has enough juice from his campaign contributees to call off the hounds. It will take a gutsy SEC to withstand such pressure, so don't get your hopes up.

Elsewhere on the Overstock front, Gradient Analytics has filed an appeal with the California Supreme Court against Overstock's junk lawsuit.

UPDATE: A reader comments:

Reg FD is only half the problem for Byrne and the BOD as it relates to Byrnes/Bagley's internet message board & blogging.

Take the example of the clearly derogatory put-down "Crazy Sam" - does this comply with Overstock.com, Inc.'s corporate policy on Code of Conduct and Ethics? The short answer is no - it is reasonable to conclude the CEO has once again violated Company Policy. This is a Sarbanes-Oxley compliance problem for the BOD. For the BOD to ignore this translates into tacit approval, or waiver, of Corporate Policy requiring a pesky 8-K filing as Sam Antar has pointed out.

And that, as I have remarked before, is 300lbs of steaming dog poop on the Board table.

To ever so briefly put myself in Bryne's ego-ravaged shoes, it must be enormously frustrating to be barred from matching tit for tat all those who have made disparaging remarks about Bryne, his lieutenants, and his Company. However, Corporate Policy demands that he take the high road, and as the highest officer of the Firm, he has a special obligation to do so. Obviously, he either doesn't agree or doesn't care, either way that's another BOD problem.

It is possible to convey his disagreement with Sam Antar and all other critics (including myself) without diving head first into the cesspool.

One more point if I may - Byrnes semi-departure from message board posting is clearly the result of a change forced on him by presumably the BOD. Therefore, his explanation of why-fores is false, or at best, intentionally misleading, and that appears to me to be yet another Reg FD problem.

As Herb Greenberg would say - "the beat goes on".

The code of ethics referred to above is not, of course, available on the Overstock website -- even Byrne is not capable of such a monumental hypocrisy. However, it can be found on Sam Antar's blog, here.

© 2007 Gary Weiss. All rights reserved.



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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

The SEC's Impotence at Combating Fraud

Floyd Norris has a terrific column in the New York Times today on the naked shorting poster child Universal Express, and how its serial violations of the securities laws have not been effectively chased down by the SEC. Here is a link to a non-subscription version.

This is not a new story. I wrote about Universal Express and its CEO, Richard Altomare, in my book, and even then it was starting to show its age. As Floyd points out:

The case of Universal Express, a small company that loses money even faster than it issues news releases, is not very important on its own merits. But it shows how hard it can be for the SEC to halt what it views as a fraud. The agency filed suit against Universal in 2004, but the company is still funding itself by issuing billions of unregistered shares.

It's also an example of an increasingly disturbing trend, which is how companies that commit fraud use the naked short selling bogyman to shield their actions.

That was true to a limited extent during the 1990s, but has received even more mileage because of the corrosive influence -- and deep pockets -- of Overstock.com's CEO Patrick Byrne. Byrne's ability to squeeze political mileage out of a crackpot cause has made life easier for the likes of Altomare and Universal Express.

The SEC, as Floyd points out, has been adept at throwing lawsuits at Universal Express, and yet the company is still thumbing its nose at the SEC.


Floyd also touches on Universal Express's status as "victim" of nonexistent "naked shorting." Indeed, as I pointed out in Wall Street Versus America, the company is a pioneer at use of naked shorting as a distraction. In recent years it has become a hero of loony stock market conspiracy websites, especially the "sanitycheck" website run by former used medical equipment peddler Phil Saunders.

SEC chairman Christopher Cox, unfortunately, has encouraged crooked and inept CEOs by his recent statements, previously reported by Floyd, brown-nosing anti-naked-shorting nuts. Such comments don't mollify the kooks, and they undercut SEC actions against companies that use naked shorting as an excuse. Investors in companies like Universal Express are suffering because of his irresponsible political expediency.

Floyd's blog contains this gem:

Both [Universal Express CEO Richard] Altomare and [general counsel Chris] Gunderson think I am wrong to focus on the company’s conduct, because the only important issue is naked shorting. Mr. Gunderson said that practice had “destroyed 3,000 companies,” a number he raised to 4,000 after I asked for a list. He then mentioned only a few companies, among them Overstock.com, which has vigorously complained about naked shorting but has not been destroyed.

Aha! The case of the missing 1,000 companies. Someone notify Scotland Yard!

The Baloney Brigade marches on.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.

Chris Cox OD's on Baloney

SEC members preparing for well-catered meeting

As I pointed out a few days ago, the SEC's meeting yesterday resembled a cheaply stocked delicatessen more than it did a regulatory agency, with half the agenda devoted to baloney -- the nonexistent "naked short selling" scandal, promoted by a handful of crackpots and corporate losers in the Baloney Brigade.

What the SEC actually did (involving a market clearing technicality of no importance called "fails to deliver") was less consequential than the irresponsible rhetoric emanating from the SEC chairman, Christopher Cox. The low point of the proceedings was this nonsensical comment by Cox: according to the New York Times, he contended that naked short selling is “a fraud that the commission is bound to prevent and to punish.”

OK, so where's all the punishment? Where are all the SEC enforcement actions? Where are all the customer complaints of genuine harm committed by genuine naked shorting of genuine, sound, non-money losing companies?

Why is naked short selling the only "fraud" that has no victims and no perpetrators, only a bunch of crackpots yammering about conspiracies?

The SEC has not commenced a single case concerning stocks being driven down by naked shorting, as has been alleged by the anti-shorting conspiracy theorists such as Overstock.com CEO Patrick Byrne and his fellow-traveling websites. Compare that to the thousands of cases involving long-side manipulation.

Yes, the SEC has filed a grand total of three suits involving naked shorting, and neither involved the "stock counterfeiting" or "massive manipulation" alleged by the Baloney Brigade.

One involved a hedge fund's complex manipulation scheme, which included shorting into PIPEs via a Canadian broker, where such trading was legal. But as you can see from the SEC complaint, that shorting was done to hedge the firm's positions, not to drive down the shares.

In the most recent case, Goldman Sachs got a rap on the knuckles for shorting in advance of an IPO without borrowing. Ditto -- hedging, albeit in violation of SEC rules. Cox called this "an important case and it reflects our interest in this area," but that's bull. "Important cases" don't warrant measly $2 million fines and "no admission or denial" settlements. "Important cases " don't involve situations where not a single investor was hurt.

Only one case involved naked shorting depressing share prices, the SEC suit against Rhino Advisors and Thomas Badian. That involved transactions involving "death spiral" convertibles, and again was a far cry from the systemic "stock counterfeiting" that naked shorting conspiracy nuts have claimed. As with Goldman, the suit was settled with a consent decree and a knuckle-rap fine of $1 million.

That's it as far as enforcement cases are concerned. The rest is regulatory wheel-spinning and pandering statements that have done nothing to satisfy the Baloney Brigade.

Either the SEC is turning a blind eye to a real life "fraud" on the market, as the Baloney Brigade claims, or Cox is behaving more as a politician than a regulator, pandering to what Seth Jayson of Motley Fool aptly calls a "squeaky wheel." Squeaky, shrill, and dishonest.

And insatiable. Since the Baloney Brigade is on a crusade against a nonexistent problem -- one that, since it does not exist, has no solution -- it will be never satisfied. Remember that the entire purpose of the Baloney Brigade is not to correct a "stock market problem," but to divert the attention of regulators and investors, and to provide excuses for inept CEOs and the brokers pushing their stocks.

Wall Street is no doubt ecstatic about the meeting yesterday. That's because the SEC eliminated the "tick test" for short-selling of securities. Since the 1930s, shares could not be shorted when prices are falling, but that's now out the window.

The "tick test" was a genuine protection against downward manipulation, and it is gone. And that's a good example of the Baloney Brigade's damaging effect on the regulatory process. By taking meaningless action against the nonexistent problem of naked short selling, the SEC had political cover to remove a safeguard against genuine manipulative short-selling.

I don't fault the media for being weary of this issue, as well as wary of falling afoul of the anti-shorting crackpots-- they've spread lies, mostly via Phil Saunders' "sanitycheck" website, about every single reporter who has written unfavorably about them. Several members of the media have told me that they avoid this issue for that reason, and I don't blame them.

However, I think the SEC's pandering to the Baloney Brigades requires more scrutiny. Media coverage of the SEC is notoriously flabby, and I think the failure to cut through the bull and fully analyze the SEC's actions in this area is a good example of that.

© 2007 Gary Weiss. All rights reserved.

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Wall Street Versus America was published by Penguin USA on April 6.
Click here for its Amazon.com listing and here for more information on the book, from my web site, gary-weiss.com.