Idiotic Idea of the Day, SEC Edition

So far, America's technocrats have held up reasonably well in the face of the hurricane-force winds buffetting the world's financial system. You can (and many do) quibble with some of the decisions made by Ben Bernanke, Tim Geithner, and Hank Paulson, but ultimately they've all done more good than harm.

Christopher Cox, however, is a completely different kettle of fish. Here's his bright idea from yesterday:

"In order to ensure that hidden manipulation, illegal naked short selling, or illegitimate trading tactics do not drive market behavior and undermine confidence, the SEC today took several actions to address short selling abuses," Chairman Cox continued. "In addition to these initiatives, which will take effect at 12:01 a.m. ET on Thursday, I am asking the Commission to consider on an emergency basis a new disclosure rule that will require hedge funds and other large investors to disclose their short positions. Prepared by the staffs of the Division of Investment Management and the Division of Corporation Finance, the new rule will be designed to ensure transparency in short selling. Managers with more than $100 million invested in securities would be required to promptly begin public reporting of their daily short positions. The managers currently report their long positions to the SEC."

Yes, you read that right: public reporting of their daily short positions. A more contraindicated and counterproductive policy it's frankly hard to imagine. As Jonathan Weil says,

Cox might as well have told the world to short the United States of America, which actually has been a profitable trade recently.

It's never easy making a lot of money shorting stocks, at least not over the long term. But there's one strategy which always works: look for the people who are complaining in public about short-sellers, and short those stocks with glee and abandon.

Cox's proposed rule would probably drive many hedge funds offshore. But before it did that, it would essentially place big red "short me" flags on any vulnerable leveraged stock. And he thinks that's going to make things better? Someone get us a new SEC chairman, quick. This guy is not being helpful.

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