5 Reasons the SEC Wants to Quash Short Sellers

Welcome to the Daily 5, our "Foolish" look at the business news you can use (kinda).

The SEC has spoken. No more shorting of Fannie Mae (NYSE: FNM  ) and Freddie Mac (NYSE: FRE  ) . Or, for that matter, Merrill Lynch (NYSE: MER  ) , Morgan Stanley (NYSE: MS  ) , JPMorgan Chase (NYSE: JPM  ) , Goldman Sachs (NYSE: GS  ) , or 13 other firms.

Wait ... Goldman-freaking-Sachs -- the broker that's come just short of telling investors to sell the entire banking sector? Ah, irony. (Sigh.)

But we digress. SEC Chairman Christopher Cox says his agency will limit shorting of liquidity-dependent financials for at least 30 days. Here are five reasons why he and his agents are acting now. Drum roll, please:

5. Everybody knows that adding "unlawful manipulation through 'naked' short selling" is the way to boost your press release's Web search ranking.

4. Because it's just not fair beating up on Aunt Fannie -- with her delicate constitution and all.

3. Because the agency was shocked -- SHOCKED -- at the possibility that there might be some Wall Street professionals out there who deliberately (yes, deliberately!) game the system to work to their advantage. (The nerve!)

2. Staffers have an agency "teamwork-building" outing planned for August and need to wrap up the whole "U.S. economic mess" thing before then.

And the No. 1 reason the SEC is cracking down on short sellers now ... Because juice boxes and time-outs weren't working any more.

No one likes to own a stock that's under attack. But is the remedy to sharply limit shorting, as blaring headlines in The Wall Street Journal and elsewhere suggest? We don't think so. How about, instead, we apply simple logic to the problem, as Chairman Cox did? Cover every short sale with a known, and available, borrowed position -- no shares, no short.

See anything we missed? Have a different take? Post your thoughts in the comments box below. And then, when you're done, get your clicks with related Foolishness:

Neither Tim Beyers nor Dayana Yochim owned shares in any of the companies mentioned at the time of publication. Tim is a member of the Rule Breakers team.

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The Motley Fool's disclosure policy is short the hedge funds betting against Buffett.


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  • Report this Comment On July 27, 2009, at 3:34 PM, DiscoFinance wrote:

    STOCK SHOCK

    The movie that helped this to happen is now on DVD (for sale only) called: Stock Shock:-The Short Selling of the American Dream. ENTERTAINING AND EDUCATIONAL. Well worth the $. Amazon has Stock Shock.

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