What is Short Selling And Why Must It Be Banned?

The US Securities and Exchange Commission on Friday temporarily banned short selling of shares in certain companies in emergency action aimed at boosting investor confidence amid financial turmoil.

I am not a stockbroker but let me give this a try. Short selling basically means that you sell stock that you don’t own. Basically you borrow a stock and then you sell it as soon as you can. The idea is that you want the share of stock to fall in value so you can buy it back at a lower price.

Are you confused yet? There is more! Those involved in this practice frequently spread rumors to get the stock to drop.

There use to be regulation on Wall Street to prevent this practice called the Uptick Rule but the SEC got rid of it. Their reasoning was that it was an ineffective rule.

Maybe I am naive about all of this but it seems to me that the Feds need to investigate the Sec. What do you think?

If you would like more information about this dubious practice here is a link:

Investopedia