As a financial advisor, I have been concerned about short selling and in particular naked short selling since the fall of 2008. Every day at 3:45pm, the market would start to nosedive. Every day, the same pattern. Who would profit from the market going down? Short sellers and naked short sellers, that's who! I saw the impact of this on my clients' accounts, the panic and despair that ensued, and how our economy tanked. Short selling in the market has had a checkered history going back to the Dutch Tulipmania, Great Depression, and George Soros shorting the British Pound that "broke" the Bank of England. There are some that say short selling is good for the market. In one case, a well-known short seller helped expose Enron. The public was protected by the "uptick rule" established in 1938 but was rolled back in July of 2007. There are proposals on the table to reinstate the rule and there was talk last spring about reinstating the rule, but I couldn't find anything saying it had been. The Wall Street Journal reports that Wall Street firms, including Vanguard Group and Goldman Sachs are arguing against new rules to restrict short-selling under consideration by the Securities and Exchange Commission. In letters filed last week with the SEC over the proposed restrictions, firms raised objections to a number of proposed limits on short-selling. So the SEC is still delaying making the decision to reinstate the uptick rule and is getting pressure not to from some of the players that stand to benefit from market manipulation.
http://en.wikipedia.org/wiki/Uptick_rule
Moving right along to the heart of the matter...
This excellent Rolling Stone Magazine (not a fan) article by Matt Taibbi explains in great detail the practice of naked short selling. He deftly walks the reader through the collapse of Bear Stearns and Lehman Brothers. The practice of naked short selling has had dire consequences --wreaking havoc on the stock market at the same time as credit default swaps and toxic mortgages were creating their own disasters--a trifecta of scams that makes Bernie Madoff look like a small-time piker. Incidentally, Patrick Byrne, CEO of Overstock.com had complained about naked short selling to the SEC for years, seeing how it negatively impacted his own company. He is still waiting for an answer! We shared several emails about this topic several months ago. This is a lengthy article with some profanity, but worth the read if you want to get a glimpse into how we investors are being swindled and manipulated.
How can a regular investor compete with these schemes? We don't have a chance. The foxes are guarding the henhouse.
http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle
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