I have heard this question asked repeatedly... I find it an insult to ones intelligence to even state this.. There has to be a scape goat... Did the short sellers make the banks give loans to speculators that were not going to live in the houses.. Did the short sellers make the banks give loans to homeowners who neither had a job or credit? Did the short sellers make the banks give companies loan to buy other companies at over valued multiples with the hope of these overvalued companies to the next guy...

It is one thing to spread false rumours ... which all know is wrong... but what is wrong about doing deep due diligence on a company...determining that their fundamentals are not in order...and taking a short position..? It is the same analysis one would do when buy stock in a company...

Short sellers borrow stock and sell it, essentially betting that the price of their target company will fall before they have to replace the borrowed shares. Now these investors are considered vultures, rumor mongers, cheats and criminals. Most have done nothing wrong but expose one of the largest frauds in our lifetime.

Bear Sterns and Lehman died because they were undercapitalized and made terrible leverage bets. Merrill's own mismanagement was the cause of it's demise. AIG is imploding due to it's credit swaps and unregulated derivatives.

The Securities and Exchange Commission halted short selling of financial companies and Futures on the Standard & Poor's 500 Index surged 2.9 percent following the announcement. U.S. equities staged the biggest rally in six years yesterday after the SEC stiffened other regulations aimed at curbing manipulative trading. The SEC said today that it will halt short selling of U.S. banks, insurance companies and securities firms through Oct. 2, while the Financial Services Authority in the U.K. banned short sales of financial shares for the rest of the year. How is this a free market???

Are markets only suppose to go...and when they fall... smart investors are not allowed to benefit.. Are we suppose to just lose money...and have the Govt bail us out???

Jim Chanos a great investor who first raised questions about Enron stated so perfectly

``We seem to have capitalism on the upside and socialism on the downside,''


That's a pretty heady brew for country that holds itself out as a free market paragon.''

Nothing changes ...short sellers were also victimized in 1929

Andrew Abraham

My Investors Place
A social network site for investors

I agree, short selling is just a pricing mechanism. If you are going to ban short selling on the downside, then ban buying when the multiples on some stocks get over the top.

I do, however, believe that the banning was necessary to gain some breathing space for the financials. Sometimes the system should be more important than the market.

The were some good points on the issue made here:
Are Hedge Funds/Short Sellers To Blame, Or Scapegoats? | HF-Markets

Still, even with short selling out, the financials can't hide weak fundamentals, which the short sellers were playing on in the first place, and the pension funds are baulking at anyway.

2c.

A laypersons viewpoint.

If you don't own a product you cant sell it. That is fraud.

By borrowing the shares and paying a fee you are not as exposed as if you bought the shares and held them to sell them later. In order to make money you MUST fuel the rumour mill. In that manner they certainly contributed to the result but not the cause.

If you owned the shares and sold at the top to buy back later at the bottom, hey good for you as it works in the reverse as well

So in my opinion you should not be allowed to trade in shares you do NOT own.

Well, HBOS tanked the other week and it was blamed on short sellers - so who gets the blame for RBS and HBOS tanking today?

Mvurachena

With respect your argument is fundementally flawed and here's why:

"By borrowing the shares and paying a fee you are not as exposed as if you bought the shares and held them to sell them later"

Short sellers are far more exposed that long only traders. Theoretically shares can rise to any price therefore the downside for shorters is, theoretically, unlimited. On the long side your exposure is the share going to Zero. For example shorting Morgan Stanley today at $12 when shares have been ten times that is a damn site more risky than being long when $12 is your maximum exposure.

"In order to make money you MUST fuel the rumour mill." And long only investors don't fuel the rumour mill? From the Tulip bubble to the dot com bubble long only investors have been 'fueling the rumour mill' for centuries.

"If you owned the shares and sold at the top to buy back later at the bottom.." This is essentially a short trade. You believe the shares are going down so you sell in order to buy back later.

Remember, shorting could not happen if holders of the shares were not happy to lend share out. A holder who lends shares out is making a bet that you, as a short seller, are wrong, and they will get their premium while holding the shares.

I do not mean to have a go, but the distortion about short selling has reached epedemic proportions and understanding of the strategy needs to be increased. If the average investor was familiar with shorting their portfolios would be a lot less risky then they have been.