That is the question that serious reporters would be asking after the SEC banned all short-selling on financial firms. Have the folks at the SEC determined that stocks of financial firms are under-valued? They must be really smart if they can determine that. Of course if the SEC crew can recognize undervalued stocks, presumably they can also recognize over-valued stocks. Have they ever stopped trading because a stock's price had gotten too high? Let's hypothesize that the SEC folks really don't know that financial stock prices are too low. Then they are preventing the shares of financial companies from adjusting to their proper level. Is there a public interest in artificially inflating the prices of financial stocks? I suspect that many insiders and large investors might take advantage of this SEC stock price support and dump their shares on people who are not quite as smart. I'm not quite sure what the public interest is here. There has been a lot of silliness about the evil "naked shorts" in recent weeks. There is nothing sinister about a naked short, it is just a convenience, it is easier and cheaper to do a naked short than a covered short. It is analogous to buying stock on the margin. We now see that the issue is not really naked shorts, it is shorts pure and simple. I can think of no reason whatsoever why the SEC should be preventing investors from acting on the belief that stocks, financial or otherwise, are over-valued than they would in acting on the belief that stocks are under-valued. If the issue is stock price manipulation, then the SEC absolutely should be cracking down, but if there are actors who can easily manipulate the market on the downside, then they can presumably also manipulate the market on the upside and have been doing so. The media should be asking questions on this. What justifies the ban on short-selling? It's a real simple question.
--Dean Baker
