Why We Don't Need Regulators

Porsche took over Volkswagen using a classic short squeeze, using its own money to bet against people who were betting wrong. Here the story is explained, but the far more interesting part are the comments after the story, where people seem to believe there is something wrong with short-selling (naked short selling is simply fraud).

Short-selling is the natural market regulator. People will short sell a company where the owners are lying, cheating or foolish. Short sellers bet their own money, plus leverage. If they are right, they make money on the inevitable fall in stock price. If they are wrong, the company targeted can make a nice profit off of the short-selling action.

Short-selling in itself never harms a company, which is something even the author above seems to not understand, calling the Porsche action "dark."

What Porsche did in Germany is illegal in USA, which means it happens in USA too, but nobody knows, because people can easily cover their tracks. So unlike Germany, you cannot learn from your mistakes. IN USA, regulations and regulators give a false security that causes people to lose money.

Surrounded by complete idiots offering advice Christopher Cox at the SEC banned shortselling for a while last fall. He has now admitted it was a mistake, causing more harm than good (which we who actually work for a living already knew), but he takes comfort in, to quote:

"If you know that you are doing everything you can to improve conditions for investors and markets ... if you know that the team of professionals that is working on the mission is first-rate, that is ample comfort against what are sometimes hastily drawn conclusions by others."

Someone needs to tip Chairman Cox off that conclusions are not hastily drawn, they are the product of long, deliberate reflection and study of how the real world works.

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