March 12, 2009
I am disappointed to hear that the removal of the uptick rule is somehow being blamed for what has happened to the markets in recent months. The uptick rule does not really make sense to begin with. There has never been a requirement for a downtick before each buy order can be executed. The same way shorts can be blamed for stocks going down, longs can be blamed for bubbles. Could the "downtick rule" have prevented the tech bubble of the nineties? Probably not, because stocks will go to the level the market wants them to. These rules may slow the speed by which a stock arrives at the value the market deems fair, but it will only make it take a few extra seconds. Shorts are not evil. Preventing investors from shorting financial stocks in no way prevented them from plummeting. That is because it is not shorts that make a stock go down. It is company specific and economic fundamentals that determine a stocks value. By making it more difficult to short, you only make it more difficult for a stock to reach its market determined value. There has been talk that CDS's in combination of short sellers have unjustly caused financial stocks to plummet. To this I would say 2 things. 1- CDS's are the real problem and go largely unregulated and are frequently abused. Buying $100,000 insurance on $25,000 worth of assets in no way makes sense yet is allowed everyday. 2- Out of every financial stock that has plummeted, show me one where the company's earnings reports did not justify it. The fact that the government is forced to keep the companies from going under by providing capital further shows these stocks do not deserve high valuations. There may be abusive shorts that are manipulative and spreading false rumors and should be illegal, but the same can be said for longs spreading false rumors to try to spark an upside for their positions. In the worst economy in many many years, it should be expected that company earnings will plummet and so will stock prices. If stocks were going up in value as the overall economy is plummeting in value, then there would be something wrong. I should be allowed to buy huge chunks of stock whenever I want even though it will drive the price up, just as I should be allowed to short large chunks of stock whenever I want even though it may drive the stock down. The market will may be pay if I am incorrect in either case. PLEASE DO NOT SUCCUMB TO POLITICAL, POPULUS PRESSURE TO MAKE SHORTS A SCAPEGOAT.