The Financial Times on Monday reviewed anti-shorting policies around the world. The paper covers the usual ground on the subject, but the piece, with a list of countries engaged in anti-shorting, does demonstrate just how broadly the strictures against shorting now extend. At the risk of getting a little cosmic, a perusal of this list suggests just how thin free-market principles are in a crisis. You can debate those principles all you want, but it is striking how easily bastions of so-called "Anglo-Saxon capitalism" like the U.K. and the U.S. tossed the shorts over the side. (The joke here, as well, is how the recent reportage on Lehman Brother Holdings Inc.'s demise tends to justify the short case against the firm.) No one would be surprised that Germany and France, with more dirigiste traditions, moved to dampen negative pressures, but the U.K.? Shocking.
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But let's go from mildly cosmic to highly theoretical. As the FT suggests, anti-shorting is broadly popular among consumers (much as the bailout plan in the U.S. was broadly unpopular). This suggests that close ties exist between intensely consumer-driven economies, like most of the West and increasingly Asia, and accomodationist economic policies. Again, I'm not saying this is good or bad. But consumer-based cultures live off credit, leverage and liquidity, and anything that threatens that, no matter how rational, has to be eliminated. Most of these economies -- though hardly all -- tend to be democratic, and consumers tend to be voters; and even in China, consumers, including shareholders, have a far greater voice than a generation ago. And while most of those consumers barely know what shorting is, their intuitive grasp of the situation says its bad, negative and vaguely corrupt.
The anti-shorting sentiment neatly captures high-end finance's plight in this wobbly world of ours. First, most folks have no idea what's involved. Second, finance hasn't exactly won any prizes for excellence lately.
A final thought that the FT touched on: I still have not seen a comprehensive analysis of larger risk management practices that have been affected by anti-shorting regimes. (The FT did touch on how anti-shorting has hurt the convertible market.) Risk management has not exactly seen its reputation bolstered in the crisis, but it remains a set of practices deeply embedded in the way "good," that is nonspeculative, finance is practiced, particularly in volatile markets. Is there less hedging going on? Are corporates feeling more exposed because of a wariness to build shorting programs into more complex financial maneuvers? Or is that set of practices relatively unscathed, beyond the fact that credit is very dear? What are the unintended consequences? - Robert Teitelman
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Robert Teitelman is the editor in chief of The Deal.
