I see the SEC is considering a ban on short selling. This is, of course, the same SEC that has failed to take any action against companies that might have, say, spread false information to support their stock prices (cough “we are well capitalized”, “KDP is willing to buy us”, “Buffett will save us” cough). It’s the same SEC that in 2004 exempted certain large banks from regulations on capital requirements, allowing them to lever up as high as 40 to 1, and removed discounting designed to account for risk.
This is nothing short of a total panic by people who have no clue what they are doing. And to think, I mocked Russia for being a nation run by market commies.
– Barry Ritholz, The Big Picture
This is a move that reeks of desperation. It’s also a move that historically results in what I like to call Epic Fail. As Tim Knight said, “They can make shorting illegal. But not selling.” If you want to see how well it worked for China, go take a look at the Shanghai Composite (from 6100 to 2000 and still falling). All they’ve done is provide fuel for a rally at the expense of removing the fucking floor. This is the kind of fetid donkey feces one expects to see in developing countries, shortly preceding the rioting and the stonings. We are well into the land of unintended consequences, and Rick Santelli was absolutely correct back in Spring when he said “we might as well put a hammer and sickle on the flag”.