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No. of Recommendations: 8
This is a disaster. A political solution -- raw meat for the masses -- to something that demands a financial one, or at least an enforcement one. Banning shorting on a large tranche of securities inhibits the price discovery mechanism in the stock market.

I have no doubt that there has been abusive short selling of financials, but the SEC already has laws on the books that it could (but does not) enforce. Further, it would be extremely easy to return the uptick rule, which would make it much harder to short shares serially.

One of the reasons that the Chinese market rose so high and then blew up is the fact that it is long-only. Price discovery is prevented. Shorting is very, very important to a healthy market.

It must be remembered that this financial crisis was not caused by short sellers. It is caused by the banking institutions themselves taking on insane levels of leveraged risk by buying hundreds of billions of poorly understood risk instruments.

The sound you hear right now is dozens of hedge funds blowing up since they can no longer hedge against a huge portion of our market. What happens when they have to sell?

Bill Mann
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