Saturday, May 10, 2008

SEC as Idiot-2

"In the days when square-rigged galleons plied the spice route to the East, the Dutch outlawed a band of rebels that they feared might plunder their new-found riches. ... Their offense: shorting the shares of the Dutch East India Company, purportedly the first company in the world to issue stock. ... Now short sellers are drawing fire once again, this time from some unexpected quarters. ... The uproar has drwan the attention of Washington. 'This goes beyond rumors,' Senator Christopher J. Dodd said at a recent Senate hearing about Bear Stearns [BS]. 'This is about collusion.' Short sellers dismiss the idea that they killed off [BS]. They say they often get the blame when things go wrong in the markets. 'Show me the evidence,' said James S. Chanos, one of Wall Street's most prominent short sellers. 'It's always easier to blame someone else, some unnamed market force than the people responsible.' ... Market watchdogs in Iceland, meantime, are looking into whether short sellers are behind a plunge in that tiny nation's currency, the krona, whaihc has lost a quarter of its vlaue this year. ... And in the [US], concern about short sellers' growing power gained new urgency last week when the [SEC] accused a former trader of spreading rumors about a big takeover and then profiting from the ploy. ... But another reason that shorts are drawing fire in that hedge funds that specialize in this kind of trading are making money--lots of it--at a time many other investors are losing. ... In the past few years, shorts warned about the troubles brewing at Enron and Tyco and also uncovered financial shenanigans at many small companies. As the financier Bernanrd M. Baruch once said, 'A market without bears whold be like a nation without a free press.' Owen A. Lamont, a finance professor at the Yale School of Management, studied a group of companies that battled with short sellers and found that those companies' share prices fell 42 percent on average over the next three years, suggesting their share prices were inflated, just as the shorts had claimed. Other Wall Street banks have also been buffeted by short sellers this year. Shares of Lehman Brothers fell almost 40 percent the day before that investment bank reported earnings in March. ... But Wall Street deals in rumors all the time. For regulators, the challenge is proving that short sellers tried to profit by spreading false information", my emphasis,, 30 April 2008.

The SEC has been after short sellers (SS) since at least the Ray Dirks fiasco, see my 6 October 2007 and 9 and 28 April 2008 posts. Hey Cox, Riccardi & Co., (CRC), why don't you worry about all the optimistic forescasts that companies out out? The SEC's crusade against SS is insane. SS do some of the SEC's work for it. One would think the SEC could show some gratitude. Is the SEC trying to protect Citigroup and the rest of Wall Street from SS which the SEC is afraid might dredge up some damaging information about these entities that the SEC and Treasury would just as soon conceal?

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