Why Banning Short Selling Is A Mistake
“Outlawing short-selling is a mistake,” said Barry, today chief executive and director of equity research at Fusion IQ and author of “Bailout Nation: How Greed and Easy Money Corrupted Wall Street and Shook the World Economy.”
“If you go back over the last few decades, every major fraud [Enron and WorldCom] has been uncovered by short sellers, he said.
Ritholz thinks the U.S. looks at European markets problem as an excuse for something that was due to happen anyway.” He believes the key is to look at various sign posts to gauge where the market is going.
He expects “the lows of may 6th to be a magnet” with the telling factor being: “Does volume attentuate as we approach those levels, or do we see supply really dominate demand and selling really pick up?”
Watch the interview below (Click play below to watch)
And with financial reforms looming, Ritholz thinks the market will be easier to gauge after some form of “derivative regulation is passed.”
“Right now derivatives are treated completely separately from every other financial instrument. That has to stop,” he said. Derivatives have to be brought under “normal financial instruments.”
But what Ritholz most wants to see are:
1. issues “on the rating agencies, who are the prime culprit in this;” and
2. reasonable limitations on leverage, because “back in the days before the 2004 waiver, leverage was limited to 12 to 1. Once that was waved for the 5 biggest banks, they were 30,35,40 to 1.”
“At 40 to 1 there is zero room for error and we saw what happened,” he summed up.
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