SEC says short-selling not responsible for stock market tumble

Posted Sep 15th 2009 5:20PM by Zac Bissonnette
Filed under: Scandals

The conspiracy theorists have been arguing for month that aggressive short-selling and illegal naked short selling played a significant role in the financial collapse.

Bad news: The data just doesn't back that up.

A new study from the SEC's Office of Economic Analysis concluded that it was long-sellers who were doing most of the selling as stocks declined. Shorts were actually more active when stocks were rising. The Wall Street Journal reports that "Credit Suisse found the ban made stock pricing less efficient, which in turn can make buying or selling a stock more costly for investors. The firm's data showed the difference between prices at which banned stocks could be bought and sold, the bid and asked prices, doubled during the ban. After the ban was lifted and short selling slowly resumed, spreads fell back to about 65% above preprohibition levels the third week of October."

Of course that makes perfect sense: Short sellers wouldn't be able to make money selling stock after it tanks -- they can only profit by selling high and then buying low.

To summarize: Short sellers weren't the problem and scape goating them not only distracted from solving the actual problems in the financial markets but also created a whole new set of problems.

Gary Weiss chimes in that "It will take some courage for the SEC to face down the political pressure to act against shorts--and courage is a commodity in short supply under SEC chairperson Mary Schapiro."

Tags: SEC, Short Selling, ShortSelling

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Reader Comments (Page 1 of 1)

9-15-2009 @ 5:36PM

Jennifer Dajo said...

C'mon!

While waiting for Michael Moore's movie "Capitalism, A Love Story" to come out, I found a movie about stock market corruption called "Stock Shock."

It exposes all sorts of stock market corruption. "Stock Shock" follows several Sirius XM investors through their experience of watching their stock go from almost ten dollars a share---down to 5 cents/share. "Stock Shock" suggests this might be due to "naked short selling" and other market manipulation by high rollers on Wall Street. I don't know if I'm a believer, but at least it gives a good review of how our stock markets are engineered. Amazon.com has it and stockshockmovie.com

9-16-2009 @ 2:38AM

Bob Irwin said...

Naked Short Selling and a well executed conspiracy between the investment banks and their co conspirators brought down Bear Stearns, Lehman Bros etc. Then they divided up the spoils. For example Bear Stearns was first paid $2 a share which was about half the value of their office bldg. in New York. Then they raised it to $10. cause the stink was so bad wall street couldn't stand it. Just click on this link to understand how they stole Bear Stearns imo:

http://www.bloomberg.com/apps/news?pid=20601109&refer=exclusive&sid=aGmG_eOp5TjE

9-16-2009 @ 2:57AM

Bob Irwin said...

Regarding Lehman Bros. and their destruction by Naked Short Selling and the other standard wall street tricks, please click on the following link which explains it so well.imo:

http://www.bloomberg.com/apps/news?pid=20601109&sid=aB1jlqmFOTCA

9-16-2009 @ 4:20AM

Dev. S. said...

The stock market crashed because of people like Bernie Madoff and the C.D.Os that were dreamed up by Quantum Witch Doctors. The Republicans allowed this exchange of worthless paper for real money because they couldn't get anything competitive to sell to the World. The Republican economic plan was similar to the financial derivative crash at "Kenny-Boy"s Enron several years earlier. The Republicans gave tax breaks to the rich hoping they would create jobs, instead they kept the money and made more by outsourcing to cheaper labor elsewhere. When two-thirds of the U.S economy is consumer-driven and people don't have jobs or disposable income perhaps the U.S economy suffers? Selling worthless C.D.Os to people in Iceland and Asia didn't win us friends and trading partners. The Republicans should be hanging their heads in shame and looking to redeem themselves and the party of Lincoln with something worthwhile or atleast prepare for the day that the pendulum swings and the lefty-loonies come out. Scream Hitler/Magic Negro and some of us wonder about the merits of your argument.
The perverse thing is that under-employed and uneducated march the streets in droves insisting that America continue with the Republican economic plan as if 8 years of spinning our wheels wasn't enough. These people think it's convenient to let some fat, loudmouth, overpaid demagogues do their thinking for them. The unwashed mobs pack their guns and want to kill the very man that is trying to help them the most. Lincoln, JFK, RFK, Ronald Reagan, Jesus Christ, Martin Luther King, Galileo, Gandhi were important game-changers that clueless, empty shotgun shell-casings-for-brains don't like and can't figure out why. It may have felt good to drop a Trillion dollars and "kick butt" after 9-11 but look for for yourselves and your own health-care after all you're worth atleast a Trillion dollars.