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Short Sellers Vilified But Vindicated

They may be vultures, but it's not their fault banks are in trouble

By Jason Farago, Newser Staff

Posted Sep 19, 2008 3:36 PM CDT

(Newser) – In a memo to Morgan Stanley employees, CEO John Mack fumed that the investment bank was being attacked "by fear and rumors, and short sellers are driving our stock down." Today, following similar action in the UK, the SEC banned short selling of 799 financial companies to stem sliding prices. But while short sellers may be vultures, they aren't fools: generally, writes Time, a company's stock get shorted when it's already in trouble.

Short sellers bet that share prices will fall, meaning they profit when others fail. Lehman Brothers, to take on example, collapsed because of mismanagement and undercapitalization—though a debate is raging about whether short sellers hastened its demise. As one MIT professor said, "The question is, Can the short seller take a firm down? The answer is no. Not by themselves."

Securities and Exchange Commission Chairman Chris Cox after leaving a meeting with congressional and financial leaders Thursday, Sept. 18, 2008 on Capitol Hill in Washington. (AP Photo/Lauren Victoria Burke)

A broker stretches himself at the stock market in Frankfurt, central Germany, Friday, Sept. 19, 2008. (AP Photo/Michael Probst)

A man walks past the London Stock Exchange in London, Friday, Sept. 19, 2008. (AP Photo/Kirsty Wigglesworth)

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Short Sellers Vilified But Vindicated

They may be vultures, but it's not their fault banks are in trouble

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Matt Taibbi reports on an insane, probably illegal practice

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Darwinian market bloodletting may eliminate raider targets

Morgan Stanley Beats Estimates With 42% Q1 Drop

No. 2 investment bank beats analysts, but earnings fall again

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They're near deal to settle allegations on mortgage-bond deals

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Short Sellers Vilified But Vindicated

They may be vultures, but it's not their fault banks are in trouble

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OTHER STORIES ON OUR RADAR

Morgan Stanley • John Mack • SEC • Lehman Brothers • AIG • short selling • Financial Services Authority

MOST POPULAR STORIES

[ By Views ]

[ By Comments ]

More Newser Stories

SEC Shredded Files to Cover Up Crimes: Whistleblower

Matt Taibbi reports on an insane, probably illegal practice

8 Days That Shook the Financial World

James Stewart on the week that Lehman failed, and meltdown loomed

Demonizing Shorters Won't Save the Likes of Lehman

Darwinian market bloodletting may eliminate raider targets

Morgan Stanley Beats Estimates With 42% Q1 Drop

No. 2 investment bank beats analysts, but earnings fall again

Banks to Pay SEC for Financial Crisis Fraud

They're near deal to settle allegations on mortgage-bond deals

About Us

Site

Newser By Users

Community

Site Maps

Tools

More News

What is Newser?