SEC To (Temporarily) Halt Naked Short Selling on Freddie Mac, Fannie Mae and Seventeen Brokers

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Ok, this is too funny.

The SEC announced today that short-sellers would have to "pre-borrow" stock in order to bet against the price of Freddie Mac, Fannie Mae and brokers (a total of 17 brokers to be exact). Basically, a trader would have to locate stock to short, and then the lender would take the stock out of the market, so that other traders couldn't short it. The SEC is doing this to halt the practice of "naked short-selling", which is when you short a stock without having to locate and borrow shares first. With regular (and fully legal) short-selling, you borrow shares of a stock, sell it, and then buy it back (hopefully, at a lower price).

Freddie Mac, Fannie Mae and the big brokers (Bear Stearns, Lehman Brothers, Goldman Sachs, etc) have been getting massacred over the past year. Instead of looking inward and pointing the finger of blame at themselves, they are unleashing the SEC on short-sellers. Forget toxic balance sheets and ridiculous amounts of exposure to subprime credit - all of our problems are due to naked short-sellers!

The funny thing is that the SEC will only step in and limit short-selling when the big brokers are involved. If you ever doubted the influence of brokers over the policy-making of the SEC, then look no further than this. I guarantee you that the SEC wouldn't have enacted this new policy if it was any other industry that was being taken apart by speculators and traders.

I don't have a problem at all with limiting "naked" short-selling. I have a big problem with picking and choosing which stocks are going to be protected under this new policy.

I'd love to know how much naked short-selling goes on at some of the trading desks of the big Wall Street brokers and hedge funds. But as soon as the brokers start finish the pinch, then we have to unleash the hounds.

Some people say that short-sellers plant false rumors in the markets in order to drive down the price of shares and profit. Others say that short-sellers cut through the BS from Wall Street analysts and shills and find the true value of a stock. Some of the biggest scams on Wall Street in the past 5-10 years (*cough Enron cough*) were first identified by short-sellers.

Many people despise short-sellers. However, many people also don't understand short-selling.

Wall Street needed a scapegoat, and it looks like they've found it: short-sellers. Too funny.
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