Adorable! Goldman Sachs is, as always, down in D.C., lobbying Congress. Except now, unlike the quiet, dignified reception to which the GS folks are accustomed, D.C. staffers are so pissed by the ridiculous lobbying that they're leaking the lobbying materials. And these materials are actually pretty atrocious. What GS is lobbying for, actually, is for no restrictions against naked short selling, in the guise of lobbying for no restrictions on short selling. (Here, we break for a short idiot's guide. First, there is a thing called the stock market. You know that part. Now, normal stock market activity is "long," as in, holding a stock and selling it, presumably, when it gains in value. "Short selling" is when you "borrow" someone else's shares, sell them, and then buy them at a later, cheaper price-returning the same number of shares, and pocketing the price difference yourself. "Naked short selling" is when you don't do the actual borrowing. The lobbying effort is against the idea of a permanent regulation mandating "pre-borrow," which means you actually have to have an agreement from someone to borrow those shares. Got it, fellow dunces?) Now along comes Goldman Sachs, creeping through the corridors, peddling the free, unregulated market.
And here is what they want. Mr. Matt Taibbi?
Goldman here is lobbying against restrictions to naked short-selling, and in arguing that point they include a graph showing the levels of "short interest" during two time periods, September-October 2008 (when there was a temporary ban on all short-selling, naked or otherwise) and January-March 2009.
Goldman's point seems to be that short-selling declined during a period when the market fell sharply, and short-selling went up when the market rallied. I guess on some planet, perhaps not on earth but some other spherical space-boulder, this is supposed to indicate that short-selling is good for the market overall.
Yes! This one thing happened during the time that another thing happened! Things were getting better while people were short-selling! Although also this graph fails to take into account that cookie sales were also up. And the the size of the fish catch in Indonesia.
Here are two similar views, both from the WSJ, about the time span of the temporary regulations against shorting, during that September-October period:
1. "The prohibitions didn't stop stocks from tumbling and some say hampered trading."
2. "Short-selling came under political attack after the market selloff last year, with the practice banned for financial stocks during 14 trading days. A number of studies showed the ban had a limited effect on the market."
Oh, so actually, the period during which shorting was banned maybe caused the market to keep tumbling, or also maybe had little or no effect on the market. Which is to say: again, some things were happening at the same time and may be related or not at all related!
He's right that what's outrageous about the Goldman lobbying is their conflation of shorting and naked shorting. How crazy is it? In recent days, nearly half of market activity is shorting. So you can make a nice graph that talks about the huge market success-at a time when people are seeing monster stock gains-being all because there is so much shorting going on and… therefore naked shorting must be good as well.
A little more Matt:
[T]he only way to draw conclusions about whether or not naked short-selling is a problem is to look at individual cases of individual declines in the share prices of specific companies, and then checking to see if there have been large numbers of failed trades in those stocks.
Goldman is not only not doing that here, they're taking two statistics with no relation to naked short-selling (short interest and stock prices), cherry-picked during two seemingly random time-periods, and then slapping them underneath a cover sheet full of platitudes like "The US equities market is increasingly efficient and broadly regarded as the best in the world." It's not so much that this is a bad argument, it's just… not really an argument at all.