(Page 2 of 2)
But in the mortgage bubble as in others, it was the companies themselves (aided and abetted by "pro-housing" government-created institutions such as Fannie Mae and Freddie Mac) that did the "burning" through their foolish practices. Short-sellers simply noticed the fire, spread the word, and profited from it.
Thanks to outdated restrictions on shorting for common investment vehicles such as mutual funds (compared to hedge funds that rely on an exemption for wealthy "accredited investors" that allows greater risk), however, middle-class investors were unable to enjoy many of the benefits of short-selling.
So rather than reining in hedge funds, lawmakers should liberate mutual funds from short-selling restrictions, which will produce both direct benefits for ordinary pension holders and the indirect benefit of having more shorts available to pop bubbles before they get too big.
Before Jon Stewart goes "back to making fart noises and funny faces," he should set the record straight on short-selling. Otherwise, Jim Cramer will have won and the joke will be on the American economy.