Ban Short Selling? A Big Mistake!

Congress may well ban or restrict the short selling of stocks. This episode of What’s Ahead explains why this would be a big mistake. 

Short selling can actually dampen the overvaluation of particular stocks or other financial assets, thereby helping to curb excessive speculation.

That’s what hedge fund manager John Paulson did in 2007, when he effectively shorted the white-hot subprime mortgage market. That disastrous bubble would have been even bigger—and more damaging—if Paulson hadn’t done what he did.

Short selling is no different than the normal selling of shares of a stock, except that in this case, the investor borrows the shares, in the expectation that he can buy them back at a lower price when he returns them to the lender. If instead the stock goes up, our short seller loses, and, as institutional short sellers discovered with GameStop and other certain other equities, the losses can be savage.

Short sellers are about as popular as hyenas and sharks and make a convenient political target. Nonetheless, Congress should keep its hands off here.

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Steve Forbes is Chairman and Editor-in-Chief of Forbes Media.

Steve’s newest project is the podcast “What’s Ahead,” where he engages the world’s top newsmakers,

Steve Forbes is Chairman and Editor-in-Chief of Forbes Media.

Steve’s newest project is the podcast “What’s Ahead,” where he engages the world’s top newsmakers, politicians and pioneers in business and economics in honest conversations meant to challenge traditional conventions as well as featuring Steve’s signature views on the intersection of society, economic and policy.

Steve helped create the recently released and highly acclaimed public television documentary, In Money We Trust?, which was produced under the auspices of Maryland Public television. The film was inspired by the book he co-authored, Money: How the Destruction of the Dollar Threatens the Global Economy – and What We Can Do About It.

Steve’s latest book is Reviving America: How Repealing Obamacare, Replacing the Tax Code and Reforming The Fed will Restore Hope and Prosperity co-authored by Elizabeth Ames (McGraw-Hill Professional).

Steve writes editorials for each issue of Forbes under the heading of “Fact and Comment.” A widely respected economic prognosticator, he is the only writer to have won the highly prestigious Crystal Owl Award four times. The prize was formerly given by U.S. Steel Corporation to the financial journalist whose economic forecasts for the coming year proved most accurate.

In both 1996 and 2000, Steve campaigned vigorously for the Republican nomination for the Presidency. Key to his platform were a flat tax, medical savings accounts, a new Social Security system for working Americans, parental choice of schools for their children, term limits and a strong national defense. Steve continues to energetically promote this agenda.



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