Saturday, September 20, 2008

"Eat My Shorts, Young Man"

SEC Issues Temporary Ban Against Short Selling.

The Securities and Exchange Commission on Friday launched an aggressive assault against short-sellers, saying it would temporarily prevent investors from making bets on stock declines in an attempt to stem some of the worst stock-market slides in years.

The SEC, which had convened a late-night commission meeting Thursday to consider several items, said in a statement early Friday morning it is halting short selling on 799 financial stocks. The ban, which is effective immediately, is set to last for 10 days, but could be extended for up to 30 days.

From Krugman.

No, I don't think this is necessarily a bad idea, but I worry about the presumptions it will create. One of the major forces against "irrational exurberence" is the knowledge that if you screw up, the short-sellers may eat your stock alive. It's possible that this intervention creates even more of an incentive for moral hazard than the bailouts did.

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