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Saut, on the other hand, noted that he’d seen those academic studies on the uptick rule, but is still sure that it does matter and that highly capitalized hedge funds, once they get rolling with shorts, can and do wreck companies. Such drama about the short-seller’s occasional role as wrecker is well exemplified by this 2005 Time article. However, truer to the typical reality of the short-seller is this more sober account from 1996 in Business Week describing the slow, steady, important, and risky work in spreading economic information that the short-seller generally provides
5) What’s the problem long-term? Even with a ban on short-selling there are still other means to act on the belief that a security’s price is going down, including the option of a put option to sell a given thing at a given price for a certain time. (If the thing gets cheaper than your put option price, you buy it at that cheaper price, sell it at the higher put price, and profit from the downturn.) Heaton points out that in a world where those at the other side of the put—who are obligated to buy at the set price, who lose if prices go down and can’t hedge their own risks by short-selling—put options are apt to be harder to find.
Most people who short are not doing so out of any attempt to drive a price down; many of them, including huge hedge funds, are often doing so merely to hedge risk when they are otherwise imbedded in transactions that depend on asset prices going up. So, if the SEC tries to make the ban more permanent, they are limiting the ways actors in the economy can cover their risk and spread information—both bad things.
But whether or not the short sell ban continues or even becomes permanent in some form, damage has already been done. The real problem is the sort it might take a Debord or Vaneigem to fully parse: it’s that SEC chief Chris Cox and those who think like him have taken upon themselves, publicly and with violent quickness, to show that they are in charge of social and economic reality, able to reshape it to their desires with their will and imagination; that common and sensible practices whose overall effect is to reveal economic reality more quickly and smoothly are to be halted at their command.
The reification of this view of governance—common, of course, to nearly everyone who reigns in or hopes to reign in that unfortunate city, D.C.—in even the most minor contexts is alarming. It’s also, alas, in the short term seemingly not stoppable. Selling short naked government power in the current crisis is a good way to lose your shirt.
Senior Editor Brian Doherty is author of This is Burning Man and Radicals for Capitalism: A Freewheeling History of the Modern American Libertarian Movement.