>The rocky shoals of regulation and reputation
It’s time to set the record straight about short selling. The media doesn’t get it. Congress, certainly, doesn’t get it. And the hedge fund industry is at risk of getting it right where it hurts, if short-sighted regulation is the result of misplaced concern about short selling. A recent column on Bloomberg blames naked short selling for the collapse of Lehman Brothers. The column begins with this shrill statement, “the biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.” Fraud, dark arts, and collusion are among the charges levied against hedge funds in the piece.
An effective counter-argument can be found on Portfolio.com, but just because a debate on short selling exists, doesn’t mean that people are hearing both sides. The critics are much more vocal and their claims play on the concerns people have about everything Wall Street. Experts say that people need to hear something between three and five times before they believe it. Believe me, people have heard that short selling is bad, dangerous, even un-American lots of times. They are writing their congressmen. Congressmen (and there are not many bankers and securities lawyers in the House), in turn, are turning up the populist rhetoric against the industry.