Hedge funds forced to disclose short positions: Bad news

Hedge funds will have to begin disclosing short positions publicly today, the first time that Main Street will get to peer into the nefarious world of people who bet against companies.

Of course, I don't think there's anything nefarious about short selling, but with some of the largest banks bleeding red ink and fading into bankruptcy or fire sales, investors smart enough to predict the current market mess have been a leading scapegoat.

So is there anything wrong with this new SEC rule? Yes, and CNBC sums it up without even meaning to: "For shareholders who have blamed short sellers for driving down company stocks, it will be a chance to see who is targeting their firm."

Mandatory disclosure of short positions will expose fund managers to issuer retaliation, frivolous lawsuits and harassment. What's so ridiculous about this rule is that a short position in a stock does not represent ownership of a security, and other than subjecting short sellers to harassment, there is no reason to require that the positions be publicly disclosed.

The SEC failed miserably in its responsibility to protect investors, and now it's compounding that mistake by targeting the wrong enemy.