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Europe’s Shorts-Sightedness – John Berlau

08/12/2011

This week, troubles in Europe may have played as much of a role in the U.S. stock market carnage and volatility as the downgrade of U.S debt. A just-announced decision by European authorities will likely damage markets there and in the U.S. even further by trying to “fix” them.

The European Securities and Markets Authority, which coordinates financial market policies for the European Union, declared a ban Thursday evening on short-selling certain stocks in France, Belgium, Italy and Spain. For an amount of time not specified in the release, no negative bet will be allowed on the prospects of these stocks.

As with proposals to jail executives at Standard & Poor’s, the EU’s action in this case is properly called “killing the messenger.” And if a temporary American ban on short-selling in the panic of 2008 is any guide, it will like make market volatility worse by suppressing vitally needed market signals. Most economists — both liberal and conservative — see shorts as a valuable counterweight to the market euphoria that creates bubbles and to the market panic that results in busts.

Read More at  The American Spectator.

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