Doh!

If Don sells me a right to sell his share of Merrill Lynch today, if I'll return another share to him in the next sixty days, right here in this web forum, what happens? Do uniformed men wearing flack jackets and toting assault rifles burst into Don's office?

Well said, sir.

Martin,

You point seems to be that it's either practically impossible for the SEC to ban short-selling or that the SEC isn't serious about doing so.

You might well be correct. In fact, I'm pretty sure that you ARE correct. But this fact doesn't mean that government efforts, or even empty proclamations, against market institutions that encourage prices to reflect reality are sensible and not deserving of ridicule.

I thought the problem was failure to deliver, not short selling. So called "naked short selling" exists when the short seller has not made an arrangement to borrow stock for possible future delivery before making the short sale. But even in that case there is no problem if the seller covers the sale with delivery by the settlement date. Intentional failure to deliver, i.e., making a short sale with out first obtaining borrowed stock AND having an intention not to do so should the stock price rise, is and always has been illegal under the Securities Exchange Act of 1934.

So, is this new rule a prophylactic rule to prevent already illegal naked short sales by outlawing all short sales (temporarily)? It seems that it is not just the failure to deliver that the SEC wants to prevent, but all downward pressure on stock prices. If so, that seems to be just the sort of market manipulation that the Exchange Act is meant to prevent. I suppose nobody thinks about it when it is the SEC that is doing it.

Someone needs to tell the SEC that sometimes it is a good thing for stocks to go down and for companies like Lehman Brothers to fail. And preventing the normal function of a vigorous market that rewards and punishes, makes mistakes and then corrects them, can be a very bad thing.

I understand that even though this rule goes into effect immediately there is still a comment period. I hope Mr. Boudreaux will send the SEC his comments.

I am really baffled when otherwise intelligent and experienced analysts on TV come up with the indefensible "You can't let AIG go down, you just can't!". Then when there is turmoil in the market place and people want to fairly trade (long, short or whatever) it is viewed as almost "criminal" to allow in this time of "crisis" by the same analysts. Don't these guys know that capitalism has an up and a down? What are they thinking? All reward and no risk? This whole matter with saving a failed company, stopping otherwise legal trading practices and the like just "kicks the can down the road" on problems. The beauty of a free market is that issues are discovered (by the market no regulators) and disposed of. The long term effect of removing the "disposal" process is that we will all greatly suffer (no big downside always means no big upside).

Hey, I've got an idea: let's also take care of all of those pesky hurricanes by banning any weather forecasts that predict them.