This Time We Really, Really Mean It!

The three wise men of the U.S. economy, Treasury Secretary Paulson, Federal Reserve Chairman Bernake, and Securities and Exchange Commission Cox testified before the Senate Banking Committee.

One of the measures that was announced by the SEC was that they were invoking "emergency powers" to prevent short selling of Freddie Mac and Fannie Mae, along with all other broker-dealers, without verification of borrowed stock. Most of us can only short sell a stock if we first borrow it from a broker. But some hedge funds and big traders short sell stock they have not borrowed first. This is called naked shorting. When it comes time for settlement, these traders simply don't deliver the shares.

Here is the ridiculous part - it is already illegal. Mr. Cox actually when on national TV today to invoke "emergency powers" for something they are already supposed to be prosecuting! This lack of enforcement against naked short sellers along with the SEC suspending the uptick rule last year have greatly contributed to hedge funds being able to conduct concentrated "bear raids" on stocks, driving them down and creating fear.

The SEC has a well earned reputation for being asleep at the wheel and only getting involved after it is too late. Emergency powers or no, the SEC needs to do its job and prevent and prosecute illegal naked shorting.