Surprise? Short Selling Measures Taken and Stocks Skyrocket?

Posted on September 18, 2008

The UK bans short selling, major US pension funds refuse to lend shares to short, naked shorting rules in the US are implemented… and stocks skyrocket? Coincidence?

Did short selling of financial stocks greatly exacerbate this panic? If so, Paulson and his cronies bankrupted Lehman (LEH), Fannie (FNM), Freddie (FRE), and took over AIG because of short-term pressure on stocks from illegal shorting? How else can the strange events of the last two weeks be understood. Some entities obviously profited big from the overnight demise of these financial companies. At the same time, long-term shareholders got completely wiped out. Was saving long-term shareholders, most of whom were employees of the companies, really a moral hazard, if wiping them out simply rewarded short sellers? The irony, of course, is that the same investment firms which facilitated illegal short sales are now being brought their knees by illegal short sales.

Unfortunately, it’s doubtful we will ever find out the truth of what transpired during this unusual month. However, it seems clear that the stock market casino, has apparently caused major political and economic upheavals. It should now be interesting to see which Wall Street firms win the business of managing the government’s new financial businesses (i.e. FNM, FRE, AIG). Goldman anyone?

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