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A Tough (Short) Sell
September 18, 2008 4:40 PM
ABC News’ Alice Gomstyn reports: If you haven’t been paying attention to short sellers lately, there are two important things you should know:
1. Some are blaming short sellers for driving down the share prices of vulnerable companies, including the now-bankrupt brokerage firm Lehman Brothers.
2. They’re under some serious pressure from the federal government, the British government and now, a state attorney general.
But let’s backtrack for a minute and take a look at what short selling is: Through short selling, investors can profit off bets that a company’s stock is going to fall by borrowing the stock and then selling it. Assuming the stock’s price falls as expected, short sellers then cover their positions by actually buying the stock at the cheaper price. They then pocket the difference between what they sold it for (the higher price) and what they bought it for.
Because short sellers essentially wager that a company is going down the tubes, they’re not exactly the most popular people on Wall Street or Main Street.
Over the summer, spurred by concerns that short sellers were encouraging the decline of mortgage giants Fannie Mae and Freddie Mac and other firms, the Securities and Exchange Commission adopted a ban on “naked” short selling -- the act of selling a stock that you don't own and haven't borrowed yet -- on 17 companies. On Wednesday, the SEC announced it was bringing certain limits on short-selling to the wider market.
Today, across the pond, the U.K.’s Financial Services Authority put a temporary ban on short-selling for financial companies.
Now, just this afternoon, New York State Attorney General Andrew Cuomo said he would be investigating whether traders illegally used false information to push down stock prices (and push up their own profits) for companies like Lehman and insurance giant AIG.
Cuomo told reporters: "Short-sellers should know today that I am watching.”
So are we.
--With reports from ABC News’ Lauren Pearl.
September 18, 2008 | Permalink | User Comments (15)
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What do people expect after the Bush administration eliminated the "uptick rule".
Posted by: Scott E | Sep 18, 2008 5:55:55 PM
Short sellers and speculators have sent out country into a tailspin. Our government has let Wall Street do what it pleases...little regulation...and we have suffered for its lack of oversight. Some people are getting rich on the backs of most of the people in this country. And I'm sure they sleep well at night.There is no integrity or honor on Wall Street.
Posted by: yybbbaa | Sep 18, 2008 6:34:26 PM
What about the year of Jubilee for the financial crisis?
Posted by: Concerned Citizen | Sep 18, 2008 7:01:35 PM
What about the year of Jubilee for the financial crisis?
Posted by: Concerned Citizen | Sep 18, 2008 7:01:35 PM
What about the year of Jubilee for the financial crisis?
Posted by: Concerned Citizen | Sep 18, 2008 7:05:13 PM
What about the year of Jubilee for the financial crisis?
Posted by: Concerned Citizen | Sep 18, 2008 7:05:13 PM
Short selling is as legitimate as going long (buying a stock). You buy a stock hoping the price will go up. Conversely you should be able to make money shorting if you expect the price will go down. People hype a stock to try to drive up the price just as much as those who try to drive it down. There is no difference.
Posted by: jdoe | Sep 18, 2008 9:45:24 PM
This step has been done just to save financial stocks at all costs. And it is probably justified given the scale of the current crisis.
Posted by: observer | Sep 19, 2008 12:01:50 AM
That must be it. . .blame the shorts. They caused this whole mess. . . . . Anyone paying just the slightest bit of attention saw this coming years ago. I shorted homebuilders and financials with everything I had long ago and have done quite well. So yes, you can blame guys like me, as it would be absurd to blame these lenders who have handed out billions of dollars worth of NINJA loans (No Income/No Job/No Assets) to anyone willing to sign on the dotted line.
Posted by: Dave B | Sep 19, 2008 2:40:44 AM
I've heard the arguments from both sides. As a professional stock broker, I would like to present a bit of perspective:
When a stock goes up, most people benefit. When a stock is driven into the ground, many people are hurt including the company, shareholders, and the public at large. Hedge funds, which are not regulated, pile in with no restraint. It doesn't matter to them whether or not fundamentals are good. These people are locusts, and shame on the SEC for repealing the uptick rule and allowing this evil to hurt so many
people. Shorting is not wrong, shorting with an uptick rule in place is a fundamentally sound practice to keep the markets running in an orderly fashion.
Posted by: Vince | Sep 19, 2008 3:45:28 AM
I just love this...short selling...well, let's remember where we were all at on 9/11/01...well, we are at 9/19/08....hmm....just 7 short years later...we never EVER came clean on the short selling of United and American stocks prior to 911...and now you wanna round this practice up...Hyprocrites Know thyself...HA...What a joke!
Posted by: Zellie | Sep 19, 2008 4:04:38 AM
Good point, Zellie. In fact, the 9/11 "insider" profiteering was even worse than that.
Posted by: brother | Sep 19, 2008 9:25:52 AM
Thanks for that reminder, Zellie.
You know who you are.
Posted by: insider | Sep 19, 2008 9:28:38 AM
"Loan Titans Paid McCain Adviser Nearly $2 Million
Senator John McCain’s campaign manager was paid more than $30,000 a month for five years as president of an advocacy group set up by the mortgage giants Fannie Mae and Freddie Mac to defend them against stricter regulations, current and former officials say.
Mr. McCain, the Republican candidate for president, has recently begun campaigning as a critic of the two companies and the lobbying army that helped them evade greater regulation as they began buying riskier mortgages with implicit federal backing. He and his Democratic rival, Senator Barack Obama, have donors and advisers who are tied to the companies.
But last week the McCain campaign stepped up a running battle of guilt by association when it began broadcasting commercials trying to link Mr. Obama directly to the government bailout of the mortgage giants this month by charging that he takes advice from Fannie Mae’s former chief executive, Franklin Raines, an assertion both Mr. Raines and the Obama campaign dispute.
Incensed by the advertisements, several current and former executives of the companies came forward to discuss the role that Rick Davis, Mr. McCain’s campaign manager and longtime adviser, played in helping Fannie Mae and Freddie Mac beat back regulatory challenges when he served as president of their advocacy group, the Homeownership Alliance, formed in the summer of 2000. Some who came forward were Democrats, but Republicans, speaking on the condition of anonymity, confirmed their descriptions."
Posted by: caliguy55 | Sep 22, 2008 5:13:48 PM
In"SHORT"put the"UPTICK RULE"back!!!!!!!!!!!
Posted by: CURT | Sep 22, 2008 10:03:47 PM
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