I found it hard to believe, so I went to the CNBC website and replayed the segment.
Imo people should step back and reason about the suggestion and not let passion and emotion cloud our judgement.
Let's consider facts:
0) The ut rule never stopped traders from shorting a stock. When the ut rule was in place, traders got bullets and conversions that while a little more expensive, allowed the same "bear raids" Cramer claims. It did not stop the meltdown of the markets in 2001, and the ut rule was in place back then.
1) Very few stocks are targeted for bear raids. In fact, the recent downturns have been on entire sectors, and a great deal of the selling is in the ETF of that sector, which then drive down the stock by the market makers in the stocks through the act of hedging. When a stock is singled out and driven down hard outside it's sector performance, it is because there is real cause that the stock is highly overvalued, or there are real cause for concerns. The problem is not the ut rule in this case, it is that the would be buyers agree with the sellers and only demand the stock to buy when the risk and rewards are seen to be matched.
2) Removing the ut rule shifts the market back into an asymmetric state, where supply and demand on the stock gets skewed, at best artifically. That caused all sorts of problems too before the ut rule was removed. Basically, it makes the stock market a pyramid scheme where you make money on the greater fool theory. People like Abbey Joseph Cohen and Jack Grubman etc would be back on the job with price discovery far more difficult in the market.
3) Without shorts, no one is on the other side of your trade providing liquidity, except for the greater fool theory. That means in fact that most investors are hurt, not helped ,as that makes ownership of the stock more expensive not less expensive over time, because price does not represent value.
Finally, I don't understand Cramer's logic. For someone that has a show twice a day, every day, and supposedly the people that watch the show are able to make decisions on investments on a daily basis, and comissions for the typical investor at rock bottom prices, why on earth would you ever want the ut rule abolished? My gawd man, if someone drives down LEH 50%
on a bear raid without regards to fundamentals, wouldn't you be licking your chops to buy it
Let them abolish the ut rule. It will just make people go to Single Stock Futures or equity options (sell call buy put is synthetically short stock). The NYX will be a warehouse within two years as option ECNs like the BOX or ISE become prevalent.
nitro
