Short sellers say stock market crisis during ban proves rout not their fault

October 7, 2008 by · Leave a Comment
Filed under: Stock Market News 

This is true, we have had the most volatility in the market during the times when we have had a ban on the stocks that have lost the most value overall, which is the financial sector.  People don’t seem to understand that short sellers actually help keep the market honest and closer to the stocks true value.  I hope they let the ban expired so we can get through this process quickly and then we can set a bottom and start building from there.  Dow 7,000ish and S&P 7-800 is what I expect unless things get real bad and then it is anyone’s call.

News:

A temporary U.S. ban on short selling has failed to stop the relentless sell-off of financial stocks, proving that the trading strategy is not to blame for the crisis shaking Wall Street, two veteran short sellers said on Tuesday.

 

James Chanos and William Ackman also said it wasn’t clear that when the ban expires at 11:59 p.m. Eastern time on Wednesday, how many institutional investors would lend their shares out to short sellers.

 

The strategy, which involves selling borrowed shares in hopes of buying them back at a lower price, has been blamed in some quarters for the collapse of several once-mighty Wall Street firms and turmoil in credit markets.

 

In the run up to ban by the U.S. Securities and Exchange Commission, several leading pension funds, including CalPERS, stopped lending certain financial stocks to short sellers.

 

“The contention was that short-selling was driving down stock prices, driving down the stock prices of financial institutions,” Ackman said on the sidelines of the fall meeting of the Council of Institutional Investors.

 

But he said the emergency ban on short-selling financial stocks, which went into effect September 19, had forced bearish speculators onto the sidelines — and yet the stocks they had allegedly targeted had continued to suffer.

 

“What better evidence do you have that it’s not short sellers driving down the prices?” he said. “It was fundamentals. The companies were taking on too much credit risk … using too much financial leverage and bad accounting.”

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