The SEC's emergency rule against short selling is being roundly derided if not outwardly laughed at. As pointed out, it has all the markings of a regulatory panic.
We figured that, feeling ineffectual if not incompetent in pursuing his charge of preserving investor confidence, SEC boss Chris Cox announced a proposal to crack down on naked short-selling --something which many market watchers believe may not even be occurring on any significant scale-- because he couldn't think of anything else to do. (And also, the head of JP Morgan and a bigshot New York Times business reporter told him to.)
But others think we're being too charitable. The SEC chief may--like many in Washington, DC--have simply lost faith in market processes that weren't producing convenient outcomeswe.
"The most charitable view of this is that the move is political, designed to make it seem like the SEC is Doing Something in the face of all the chaos," Felix Salmon writes. "But it doesn't look like that: it looks like the SEC is happy signing on to the belief that stocks wouldn't be falling if it weren't for short-sellers. In other words, the Powers That Be don't trust the market, and the SEC has gone from facilitating price discovery to making it harder."
David Gaffen at Market Watch mocks the SEC's program as "Operation Stocks Go Up Always."
The move may, ultimately, satisfy the bigwigs among major financial executives who recently discovered that the bilge being held on their balance sheets is not the cause of their problems but the terror of short-sellers. But it's detrimental in the long-term, as it gives people yet one more reason to excuse the market's condition as the figment of someone else's nefarious plan. "At the end of the day if there's smoke, there's fire," says Dan Alpert, managing director at Westwood Capital.
Nice touch, Dan Alpert. Jamie Dimon, you'll recall, used that very phrase when claiming that a conspiracy of short sellers was causing financial stocks to decline.
Four at Four: Operation Stocks Go Up Always [Wall Street Journal]
The SEC Panics [Market Movers]