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Yale Law School’s Jonathan Macey explains clearly, in today’s Wall Street Journal [2], that George Bush’s, Congress’s, and the SEC’s recent interventions into today’s panicky market are making this panic not only more intense but justified. Here’s an important passage:
Of course, market manipulation does exist, but federal regulators
deserve much of the blame for this form of market abuse. For years the
SEC has hampered companies’ ability to protect themselves from
manipulation by short-sellers. The most effective way for a company to
respond to an attempt to manipulate its share prices is simply to
repurchase its own shares, simultaneously "squeezing" the short
positions and sending a clear signal of financial health to the capital
market.
However, companies have long felt vulnerable to being charged by the
SEC with manipulation whenever they go into the market to make share
repurchases. The SEC finally acknowledged this problem after the
collapse of Bear Stearns and Lehman when it stated publicly that
"historically, issuers generally have been reluctant to undertake
repurchases" when faced with manipulative short-sellers because of the
massive amount of uncertainty about whether the SEC would sue them for
trying to manipulate the market.