Imagine that. After markets have been roiled by manipulating short-sellers and traders during our recent 20 percent decline, and two of the nation's largest home lenders, Freddie Mac and Fannie Mae, were on the verge of collapse, the SEC decided that maybe something should be done.
The SEC is moving to bar "naked" short selling of bank and brokerage stocks for at least 30 days, and maybe longer.
Short-selling involves borrowing stock from a brokerage and agreeing to buy it later, hopefully at a lower price. The investor pockets the difference between the borrowed and purchased price if the stock does, indeed, fall. But the furor in the markets have given way to massive waves of shorting, often involving shares being "borrowed" by more than one trader, without any type of contract in place.
This, SEC officials maintain, exacerbated downward momentum in the market. The SEC, according to the Wall Street Journal, is investigating whether Bear Stearn's collapse had much to do with short sellers spreading false rumors and driving down shares.
Critics of the SEC's move accuse the regulator of interfering with the free market system. Others argue that the short-selling action should apply to other publicly traded companies than just financial firms and banks.
"For heaven's sakes, they're the very ones we believe have been doing this ... to thousands of public companies," a lawyer who represents companies that have filed lawsuits pertaining to short-selling told the Journal.
Regardless, coming to the market's rescue now, seems like the fire department showing up at a house that burned down hours ago.
Brian.
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