April 8, 2009
Dear Commissioners,
The recently announced proposals for regulating short-selling miss the point. Short selling is not and never has been an "investment strategy." The point of a stock market is to allow people to invest in an enterprise and make a profit on the enterprise if it succeeds in producing a product or service that people want to buy. Stock shares are the means of consolidating funds so that large-scale enterprises can exist. The return on investments is the dividend. Short-selling plays absolutely no role this market. It functions only as a short- term means of gaming investors. It's a means of gambling. The house lends you some chips to play with and you win or lose. But you're never investing.
The problem with short selling is that there are 3 players. It's not you versus the house, both willing to gamble. It's you, the house (the people who lend you the stock) and the real investor, the person who is actually investing in the enterprise. In short-selling, the house never loses. The gamers may win or lose. But the real loser is someone who is holding the stock as an investment rather than a gambling chip. The real investor gets killed by short-selling (well the real investor gets killed by all of the stupid trading manipulations).
The regulations proposed do nothing about the fundamental problems of short-selling. They nibble at the edges, and are probably not enforceable. After all, you couldn't catch the massive manipulations of AIG or the banks. So. . how effective are you going to be? And, even if you are effective, why? Short-selling just has nothing to do with rational markets. It's a card game.
Sincerely.
Jud Monroe