Former SEC Staffer Blasts The Regulator's Short Selling Ban Lunacy, Calls Decision Purely Motivated By Politics

As if anyone needed more proof that the corrupt, biased, inefficient, and outright worthless SEC should be disbanded right now, this instant, here is former SEC staffer Erik Sirri, who ran the SEC’s division of trading and markets, confirming that all the SEC does is supervise Wall Street's stealth transfer of wealth from the middle class to the Wall Street kleptocrats (as in, "you have only stolen enough to buy just one G-V?"), and does so with a political bias at that. As Bloomberg reports "The U.S. Securities and Exchange Commission’s decision to restrict short selling was a political decision rather than one based on evidence, according to a former agency official who says it may set a precedent for future decisions." And what politics was involved pray tell? Why, the type that would make the new president incredibly unpopular even before he was sworn in. It becoming increasingly clear with each passing day that this country's equity market is nothing but a sham and a teleprompter-friendly mirror before which Obama can act glum, even as the very regulators allow the market to be manipulated in a way that encourages risk taking, and thus delay and inevitable and terminal crash. But to Obama a crash in the future is worth a hundred rallies in the present. Just as a bankrupt America in five years is worth(less) a mid-term election won (by the narrowest of margins) in November. Not only is the fiscal and monetary policy of this country doomed to an eventual debt repudiation outcome, so, we are now certain, the markets will hit 36,000, wiping out all the shorts on the way, only to be followed by a surgical collapse straight to zero. You will have only the current and past administrations to thank for that, together with all their crony, corrupt, and incompetent regulatory agencies, with the SEC (and CFTC) at the very top of that list. In the meantime, and borrowing from a very prescient French (wo)man in the ending days of that particular civilization, After This Administration, The Deluge.

More from Bloomberg:

Commissioners who voted for curbs when a given stock falls 10 percent from the prior day’s closing price did so without proof that it would improve markets, said Erik Sirri, who ran the SEC’s division of trading and markets during the credit crisis that began in 2007.

The agency temporarily banned short sales on more than 900 financial stocks in September 2008. The Standard & Poor’s 500 Index went on to plunge more than 40 percent through March 2009. The SEC reintroduced limits on the practice last month that will be implemented later this year. The proposal followed more than 4,400 comment letters, most asking for restrictions on short selling, and Morgan Stanley Chairman John Mack blaming bearish bets for driving his company’s stock down in 2008.

“The SEC is going to have to decide how political it’s going to be,” Sirri, who ran the trading and markets unit from August 2006 until April 2009 as an appointee of Republican President George W. Bush, said at a conference yesterday. “It’s not exactly the case that short sellers were wrong” to bet against banks in 2008, he added. “Short sellers were making those prices more efficient. They were right.

Go ahead. Try to explain this very simple fact to G-Pap... Or the idiots in the European Commission... Or bankrupt California's Treasurer. Or to the Fort Huachuca comm specialists eavesdropping on every conversation in which the keyword "short" in it. We dare you.

Sirri said the “political character” of this round of short-selling regulation is “atypical” even though the commissioners are political appointees. He spoke yesterday at a Capital Markets Consortium conference in New York. The agency’s short-sale rulemaking will alter “how people are going to approach the commission in the future,” he added.


The commission approved the new rule because, it said, investors who own stock should be able to exit positions before short sellers, which would alleviate rapid downward pressure and give investor confidence a boost. The two Republican commissioners, Kathleen Casey and Troy Paredes, voted against the rule. The two Democrats and one Independent voted for it.

We wonder if the next step in this escalating politicization of markets will be the ability to sell a stock only if one can prove they voted for a certain candidate in the previous election.

Sirri is not alone in his condemnation of the idiocy of the SEC:

The Security Traders Association, a trade group based in Darien, Connecticut, told the SEC yesterday that its decision on short sales was “based on inadequate analysis, a lack of empirical data, and questionable rationale.” The organization added, “We are concerned that this could become a rulemaking standard.”

And here is the nail in the SEC's coffin:

When the SEC asked large brokers for “a name or trade we can go on” to track down allegedly abusive short sales in the fall of 2008, no information was provided, Sirri said.

“I’m not saying it didn’t happen, but there was nothing actionable that came back,” he said.

We rarely swear here on Zero Hedge but after reading this it is getting very close to earmuff time.