by Michael Shulman 09/22/08
Shorting stocks almost has a sexiness surrounding it -- if anything remotely related to investing and trading could be considered sexy.
It tends to evoke images of men in suspenders with cigars and whiskey snifters, discussing what company they should kill next in the stock market.
Unfortunately, this image was sharpened this past week as the U.S. Fed, the British Parliament and the Australian government outlawed some or all shorting to protect over-leveraged or fundamentally lousy financial institutions from what they said were unfair attacks on their stocks.
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To that, all I have to say is this: Remember how well Prohibition worked out the last time the government outright banned something that subjective public officials decided was bad?
That action bred even more destructive behavior, and the real criminals still profited while the innocents went under as rum-running goons grew rich, branched out into other industries and brought their corruption with them.
SHORT-SELLERS AREN'T NECESSARILY THE BAD GUYS
Well, we may not see a new "Scarface" emerge from this, but believe me when I say that some legit traders are being affected by this move to stop the shorting of 799 financial stocks till Oct. 2.
And those legit traders include you and me, because even though we may not be directly shorting stocks, as options traders we enjoy the ability to buy puts as the safer, saner way to go short. And while we can still trade puts, the playing field is a lot rockier.
Too bad the "good guys" have to get punished because of greed and irresponsibility in the companies that are being protected. But will this temporary action be the cure-all that Wall Street is hoping for, or are the toxins simply going to burst forth at full force when the short-selling ban is lifted next week?
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