Short Selling is Not Evil

Listen to populist politicians and the bulk of the media, and you get the impression that short sellers are bad. And short selling is what causes much of financial problems we have.

There are times when it does. But short selling usually has its place and has a proper function in the securities business.

This is the practice of selling borrowed securities, in the hope of buying back them back at lower prices in the future.

Without allowing short selling, over heated, overvalued securities would continue rising and add to dangerous bubbles and thus prevent markets from being priced more rationally.

Short selling generally keeps markets honest. Finding ways to dictate when to stop or retard its use will only exaggerate market extremes.