As doomsayers from Nostradamus to Cassandra have learned to their great distress, nobody likes a spoilsport.
That seems to be the guiding principle behind the perennial complaining on Wall Street and Main Street about the practice of "short selling."
The prevailing opinion can be summed up as this: Nasty creatures, those short sellers -- always looking at the dark side, raining on every parade. Gangs of corporate chief executives regularly march on Washington to demand that somebody do something about short sellers (typically when the stock market turns down). The next thing you know, the Securities and Exchange Commission is holding a meeting about the subject.
Like it did Wednesday.
The SEC's new chairwoman, Mary Schapiro, kicked off Wednesday's meeting by observing that in her roughly 10 weeks in office, short selling has generated "more letters from investors, brokerage firms and exchanges, more inquiries from members of Congress and more questions from reporters than any other topic."
She has my sympathy. Considering that this period has encompassed such lively controversies as bank accounting irregularities, the AIG revelations and the Bernie Madoff scam, you'd think people would have better things to write letters about. But the idea that short selling is a uniquely nefarious practice never seems to go away.
Wednesday's meeting closed with a unanimous vote to put a roster of anti-short-selling measures out for 60 days of public comment. If you listened in, as I did, it sounded as if the commission wasn't sure it wanted to do anything, but felt obliged to put the issue out for discussion.
One cause of the persistent outcry about short selling is public ignorance of just what the practice entails. So here's a primer: In its basic form, it's selling stock that you don't own but have borrowed, with the idea of buying it back later at a lower price and pocketing the difference.
Think of it as running the investment principle "buy low, sell high" in reverse -- you sell high first, then buy low.
Plainly this is a rational strategy if you believe, or fear, that a stock's price is headed down. It is not illegal, and in some places, like futures markets, it's positively welcomed. But it goes against the grain: Selling something you don't own smacks, at first blush, of a confidence scheme.
Plus, the very idea of someone acting on a cynical hunch undermines the sunny optimism that Wall Street brokers and corporate bigwigs love to peddle to the public.
