Financial Crisis & Short-Selling

I am not an expert on financial markets. To the extent I write about stocks and markets, I stick to what I know and understand: technology, products, business, and strategy. However, I have often wondered what good does short-selling bring about as a financial tool.

Well, yesterday, Jim Cramer started ranting on CNBC about how the Hedge Funds and short-sellers have brought AIG and other financial institutions down, and how Chris Cox, SEC Chairman, fell asleep on the wheels. Cramer believes that the SEC should bring back the uptick rule which Cox cancelled. That rule requires a stock to tick up in price before it can be sold short. Cramer, this morning, has even started a rumor of financial terrorism.

And today, it seems, the world has awakened to a broader awareness about short-selling as a problem, as Hedge Funds dig up dirt to crash a stock, which in turn, often crashes companies. New York Attorney General Andrew Cuomo now wants a wide-ranging investigation into short-selling.

I have been asked by Hedge Fund managers if I could become a “source” of bad news for them. Intellectually, I possibly could. But how would I wake up in the morning and look at myself in the mirror if that became my business?

You see, those who are in the business of “building” don’t like this destructive component of the financial market, and it triggers some visceral nauseating reaction in us.

Yet, business schools continue to send their best and brightest students into a profession – Trading – which has nothing to do with building, and most certainly nothing to do with leadership or vision. And Traders use both Long and Short positions to do their job. The whole thing feels like a wastage, although most experts would tell you that short selling does need to remain legal as a “market tool“.

The ever-optimistic entrepreneur in me wants to believe that this crisis will perhaps steer us away from the greed and destructive behavior, and put the focus back on Building. I am not sure, somehow, if the realist in me is as hopeful.