When politics and markets supercollide…

September 19, 2008

Fresh on the heels of the head-spinning events yesterday, with Republican John McCain demanding that former Republican Congressman Chris Cox be fired for “being asleep at the switch” and Cox responding with this unusual statement, there’s a whole new list of rules that the SEC is out with this morning, including a new form SH that will require anyone who filed a Form 13-F for June 30, to start filing on Monday.

And, if that weren’t enough (especially this early in the morning), the SEC has also issued an emergency order halting any short selling for 799 financial companies. I’ve taken a quick skim of the list, which seems to take a pretty broad view of financial companies like Molina Healthcare (MOH) (which in the interest of full disclosure I have a small position in). Here’s the money shot quote from all of the pages that were released this morning:

In these unusual and extraordinary circumstances, we have concluded that, to prevent substantial disruption in the securities markets, temporarily prohibiting any person from effecting a short sale in the publicly traded securities of certain financial firms…is in the public interest and for the protection of investors to maintain or restore fair and orderly securities markets.

Here’s the translation: As Republicans, we’re all about free markets. Until they start to get messy and then we’re not. Clearly, the folks at the SEC were very busy last night and it should be even clearer to anyone who has even cursory knowledge of the stock market that bad politics are getting in the way of rational market behavior.

It’s certainly easy enough to blame short sellers for the current mess in the markets, especially when it’s politicians who are doing the spinning. But all of the blame in the world won’t bring back Lehman (LEH) or Merrill (MER), no matter how many times John McCain clicks his heels. We’re sure it’s entirely coincidental that many of the brand-name shorts — people like David Einhorn, among others, the evil-doer behind Lehman’s unraveling — have been generous donors to Democrats seeking to increase their majority in both the House and the Senate.

I don’t often find myself agreeing with the WSJ’s Opinion page, but they pretty much nailed it this morning in this editorial:

The irony is that this critique puts Mr. McCain in the same camp as some of the Wall Street CEOs who have led their firms so poorly. They also want someone (else) to blame. In a crisis, voters want steady, calm leadership, not easy, misleading answers that will do nothing to help. Mr. McCain is sounding like a candidate searching for a political foil rather than a genuine solution.

Short sellers may make for an easy target, but that doesn’t mean it’s the right one. What about the people — the executives and the directors — who were making the daily decisions that drove many of these companies to the brink (or in the case of Lehman, bankruptcy)? Shouldn’t they shoulder at least some of the blame?

Here’s a radical idea: Let’s leave the new rules to comedians like Bill Maher. That’s because coming up with hastily put together new rules — not to mention new forms that seem unlikely to address the real problem — makes for both bad markets and bad politics.

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