Short Selling Rules: When Will Analysis Replace Rhetoric?

Jesse Westbrook at Business Week writes that SEC (Securities and Exchange Commission) economist, James Overdahl, is resigning. Overdahl has done extensive research that shows no evidence that short selling has contributed to market declines.

Overdahl was originally hired by Christopher Cox three years ago as the SECs chief economist. Reorganizations by Cox's successor, Mary Shapiro, had lowered Overdahl's position in the organization chart. His most recent job title is not evident in the Business Week article; he is referred to as a top economist.

In spite of the analysis by research teams under Overdahl, the SEC has passed rules that limit the situations where short selling can occur. These rules have been criticized as being capricious and not based on analysis. Of course, some of the criticism has come from hedge funds that can be argued have prejudice.

On the surface the following appears to be a list of possible characterizations for this situation:

1. It is difficult to be a messenger. Sometimes they get shot.

2. The facts be damned: Let's do the politically popular and expedient thing.

3. The bogey man of short selling continues to be played. Vikram Pandit, Citigroup's (C) CEO, recently blamed short selling for his firm's difficulty. See here for Pandit's disingenuous statement and here for recent news on Citi's continuing efforts to sell assets to cover operating losses and asset write downs.

When will rhetoric be replaced with analysis?

Hat tips to John Carney at Clusterstock and Ilene at Phil's Stock World.

Disclosure: No positions.