Another Cover-Up

Remember when John Ashcroft, serving as Attorney General under President Bush 2001-2005, required that the statues in his press room be made, well, less revealing? In an effort to protect the public, expensive fabric was draped over the age-worn marble of both Spirit of Justice and Majesty of Justice--well, at least over the more love-worn parts. The language of art was muted to satisfy our government's assumptions about our well-being. The thought art provokes, the questions it raises, and the beauty it portrays were denied an audience (what audience? ...not sure anyone was watching Ashcroft, anyway).

Mr. Ashcroft opposed nudity in art. Last week, the SEC decided it would oppose nudity in short selling. In an emergency order released July 15 (see: http://www.sec.gov/news/press/2008/2008-143.htm) SEC announced that for 19 publicly-traded financial company stocks (such as Lehman Bros., B of A, Citigroup, and of course, Freddie Mac and Fannie Mae), short sellers have to pre-borrow the subject securities, as opposed to the standard pre-locate practice. Trading firms everywhere are scurrying to devise procedures to meet this order. Some are saying 'forget it'--we just won't trade in those stocks for 8 days. And maybe that's what the SEC is hoping for: shrouding the market in a blanket heavy enough to silence the critics.

The SEC's mission was to "protect investors, maintain orderly markets, and promote capital formation." Is it possible that what the SEC is really doing is denying the rightful power of the free market to self-adjust? I mean, by shielding these firms from what the market wants to do--short the hell out of them in expectation of falling prices--isn't the federal government, with its artificial drapery, silencing the thinkers? ignoring the questions? rejecting the beauty of a sophisticated investment community? Why not let things progress as they otherwise might--let these financial houses of cards fall? Let the investors suffer for their bad choices? As they say in sports, no pain, no gain. The gain we sacrifice here is badly needed. Corporate bail-outs, no matter what form they take, don't help us progress. They just delay the pain.

On a practical note, by now you should have talked to your clearing firm about rules engines or other means of ensuring this temporary rule is enforced. And you should have informed your traders of the specific requirements. Be sure to notate your short sales as having complied with the 'pre-borrow' ethic. Keep the records; have a supervisor review the records. As for keeping your clothes on, well, that depends on how hot it gets...and your definition of 'art.' ;)