Short Selling Ban Failed
Short Selling Ban Failed | New Study
After a dinner in April with US treasury secretary Henry Paulson, Lehman Brothers Holdings Inc. CEO Richard Fuld emailed the good news of what he learnt to his general counsel. Fuld reported that Paulson wanted to “kill the bad” hedge funds and “heavily regulate the rest”.
Fuld was delighted to hear that the treasury sided with Lehman against hedge funds that were short-selling its shares, along with those of several other investment banks. Instead of blaming hedge funds for their prediction that Lehman’s share price would fall, Fuld should have acted on the short-sellers’ clear warning, months ago, that he was atop a powder keg of mortgage-related securities that would soon explode. Instead, Lehman is bankrupt and Fuld is a former CEO.
Lightly regulated institutions were the ones to identify problems in the most regulated parts of the industry For their part, regulators spooked markets by trying to make short-sellers the scapegoats for problems they didn’t cause. The biggest impact of the temporary ban on short-selling, which expired earlier this month, was its role in undermining the trust on which markets rely. Why would regulators ban short-selling in nearly 1,000 companies, effectively banning accurate information from the markets? Source