The Socialists Killed The Short Sellers

There was a perverse honor in being a short-seller. It was an honor among thieves, but the group usually made lots of money by taking significant risks.

Short-selling was based on one of the foundations of capitalism. Making money betting on disaster is just as much a part of the economy as taking the optimist’s side.

Banning short-selling in financial stocks, which both the US and UK have done, will halt the activities of the so-called naked shorters. These firms short shares without borrowing them from other firms. They are required to do that borrowing because it is the basis of their risk. If the stock they borrowed goes up, they have to pay the difference of what the original owner would have made.

Killing short-selling buries naked shorting. It also demolishes the entire market for legitimate gambles that a stock will go down. It subverts one of the most important checks and balances of equities trading.

The regulators feel that poisoning part of the system is the only way to save the whole market. No one will ever know if that is true. Free marketers such as George Soros felt that the whole bloody mess should be sorted out on its own and that the government should simply stand by and watch the world burn. Soros and his ilk were voted down and banned from the property.

Short-selling was always a dirty business, and now the government has decided that it is no business at all.

Financial stocks will rise on the news that the system for betting against them has been crushed. In the process of the shares going higher. there will be very little left to tether them to the earth.

Exuberance will have its day, but it may be that when the next set of banking and brokerage quarterly losses are announced there will be another round of crashing share prices. The shorts will not have been permitted to do their jobs.

Douglas A. McIntyre