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SEC Bans Short Selling for 10 Days

Friday, September 19, 2008

The Securities and Exchange Commission placed a 10-day ban on the short selling of nearly 800 financial stocks, but some economists are wondering if it's the right move. WNYC's Lisa Chow reports.

Charles Jones is a professor at Columbia Business School.

He says when the stock market goes down, everybody looks for a scapegoat. This time, the Securities and Exchange Commission targeted short sellers and hedge funds.

JONES: I think it's crazy. I think the SEC has gone off the rails here. I think short sellers really provide an important function to the market and what these guys have done is gone out shooting the messenger.

REPORTER: Jones says you've got optimists and pessimists. And you need information from both to get to the right stock price. If you take out the pessimists, then prices will be artificially high. Meaning you'll be buying something for more than it's worth.

Jones believes the government was determined to see stock prices rise. And the strategy appears to have worked, with the rally on Wall Street.

But he says it wasn't a good precedent to set.

For WNYC, I'm Lisa Chow.

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