"Jim Surowiecki says, quite rightly, that short selling can cause viciously self-fulfilling downward spirals, especially in financial stocks. But reading the WSJ's long and alarmist tale of what happened to Morgan Stanley in September, I'm more convinced than ever that short-sellers, be they in the stock market or the CDS market, are not the cause of current problems.
I'm with Jim Chanos on the subject of the WSJ story: he writes that
Read the rest. Here's my comment:The WSJ piece, despite its sensationalist headlines, actually confirms what we have been telling Washington for some time now. That is, that most of the "short activity" in the banks/brokerages, was to hedge embedded long exposure to these institutions, often by other banks/brokerages! These were NOT "bear raids", but prudent fiduciary-related decisions made by these entities to protect their capital/investors. An important story to the Financial Crisis narrative so far."
This whole worry has the whiff of a jinx. It's as if people are saying, "Look, we want the index to go up. That's when everything gets better. If you bet on the index going down, you're basically cheering on calamity, and making money on it. How dare you!"
What am I missing? After all, do we ban people who are naturally ebullient from trading, since they might cause the index to go up too much?
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