In today's markets, where price changes can be as small as a penny, an uptick rule might delay a price decline by "maybe one minute," says Pete Kyle, a markets expert at the University of Maryland. In other words, it's no panacea.
Indeed, the SEC's last big anti-short initiative was a bust. That was the ban on shorting nearly 1,000 financial stocks the agency imposed from Sept. 19 through Oct. 8 last year, when there was widespread panic about shorts supposedly gearing up to trash the entire high-finance industry, one Wall Street icon after another.
In the long term the move utterly failed to stop a fundamental (and justified) revaluing of financial stocks. But it may have temporarily pumped some stocks higher than they should have been, only to fall back to Earth later -- to investors' misfortune, USC's Harris says.
"Those who bought during the ban overpaid," he says.
Perhaps more damaging to investor confidence, Chanos says, the ban "just showed the government was willing to enact abrupt financial market rule changes in response to pressure from the banking and brokerage industries."
What's really needed in the stock market is more and better information, which is what vigilant shorts provide. The wise investor gains not by driving them away but by listening to what they say.
Let's not forget that when the god Apollo decided to punish the seeress Cassandra for spurning his love, his curse wasn't that her predictions would be wrong, but that they'd be disbelieved.
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Michael Hiltzik's column appears Mondays and Thursdays. Reach him at michael.hiltzik@latimes.com and read his previous columns at www.latimes.com/hiltzik.
