Markets are going down partly because traders are shorting shares. So maybe we should make them go up by stopping shorting? Never mind that the shorting is an indication of what the stocks are actually worth.
This anyway is the flawed logic of such financial gurus as Barney Frank. See Dealbook, and the WSJ:
Rep. Barney Frank was reported to have said that the Securities and Exchange Commission may reinstate the uptick rule, which barred investors from betting against stocks that are already falling. The SEC eliminated the rule in July 2007 and some investors have pushed for its return. If reintroduced, the rule will serve as a stabilizer of the market "because people can't pile on a stock all at once," said Dave Rovelli, managing director of U.S. equity trading at Canaccord Adams. Still, the rule is not going to prevent failing companies from going under, Mr. Rovelli said
As I've argued, "short-sellers are significant potential contributors to market efficiency." Here and here is some evidence. Here's my and Bruce Kobayashi's extended argument in favor of efficiency-driving trading by informed outsiders, and my analysis of the arbitrage function of short-selling in disciplining "noisy" markets.
Hardly anybody -- particularly politicians -- likes to see markets gyrate the way they have been, particularly not when the gyration is mostly down. But markets need to stabilize and rise the old fashioned way -- based on information. Removing a significant mechanism supporting market efficiency is the last thing we need in these times.
Finally, consider this: the securities markets are a report card on government actions. These actions, as I've said, are undermining and destabilizing markets by, among other things, dithering and threatening property rights. So it's not surprising that Barney Frank -- a key architect of the housing bubble that got us into the mess -- would like the naysayers to go away.
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