July 24, 2008
The essence of Capitalism is to identify the highest possible return on Capital at the minimum cost. Our wonderful Country followed that axiom for 200 years upon becoming an independent nation. Our leaders have recently gotten lost on this so important mission.
Short Selling purports to take capitalization away from underserving and inefficient companies. In a practical sense, the regulatory landscape has created the opposite effect. Capital is being drained off of deserving and efficient companies. Bear raids by Hedge Funds, out of control short selling by market makers are killing our biotechnology start ups and slowing down the development of a once forecasted brilliant future.
A quick example of this. Are you aware that nearly 40% of the common shares for Dendreon Corporation were shorted at one point? Market Makers were printing common shares as if they were old Reichmarks. Hedge Funds came in and reduced the stock price roughly 40% for absolutely no reason other than the Company was vulnerable. This has had the effect of raising the cost of capital for this biotech company roughly 30%.
As this Company may produce a breakthrough drug in the fight against prostate cancer which killed 30,000 American males last year, can the American Public be possibly served by pulling the plug on such a company prematurely by such Draconian practices?
If we are not careful, breakthrough medicines may suddenly disappear from the scene.
On the other hand, where has the capital of such companies gone? Again, these Mega Short entities and Market Makers have to go back to our original mission. They have to allocate Capital. Only, it is now sub-optimized and our industries across America are competitively weaker. Our markets are beginning to show the wormwood created by such practices. Our industries are now receiving very difficult competition in many of our key industries. Why? Because our Cost of Capital is rising while our competitors Cost of Capital is falling.
Please stop giving incentives to short companies by failing to end such anti-capitalistic business practices. Force accountability of all Hedge Funds as if they were in the old Mutual Fund Industry. Please REGULATE these entities and force their compliance with proper shorting rules.
Lastly, please eliminate all market maker exemptions. We can't afford the havoc being played out by their invisible hands in our stock markets.
Ford L. Williams