Matt Taibbi, the great Goldman Sachs gadfly who coined the now-clichéd image of the corporate giant as a "giant vampire squid," has found his new bugbear: naked short-selling. "Naked short-selling," as Taibbi explains, "is a kind of counterfeiting scheme in which short-sellers sell shares
of stock they either don’t have or won’t deliver to the buyer." In a 1300-word preview of his new Rolling Stone article, he makes his case against it. "The practice," he writes, "is absurdly widespread and takes place right under the noses of the regulators, and really nothing is ever done about it." Furthermore, the old villain Goldman Sachs is lobbying Senate staffers and swaying SEC roundtables on the subject, circulating "ridiculous" fact sheets and deliberately spreading disinformation.
So does Taibbi have a point? Alex Blumberg, who devoted some serious reporting time to naked short-selling on National Public Radio, would probably agree with Taibbi about problems with the practice. Regular shorting, according to Blumberg, is when you sell and buy back a borrowed item, whereas naked shorting involves sale of an item you never even borrowed. But a number of business bloggers object to the notion that Goldman Sachs is deliberately misleading senators, and a few even defend naked short-selling itself. Here's their case:
- Taibbi Misses the Point Naked short-selling, argues the Business Insider's Joe Weisenthal, really isn't so different from "regular old short-selling," also "vilified by the media," and by bringing it up in a story on Lehman Brothers and Bear Stearns, Taibbi is blaming "market manipulators" for mistakes that should properly be laid at the feat of the top executives. "Why is he advancing a theory that lets failed bankers off the hook?" Asks Weisenthal. "Ah, here's why. Because there's an anti-Goldman angle." He pooh-poohs the notion that the firm is misleading senators. "[C]ompanies do actually lobby," he notes.
- Ditto John Carney, former Wall Street lawyer also of the Business Insider, agrees with Weisenthal: naked shorting is pretty similar to regular shorting, and "by shining a light on naked shorting, [Taibbi] takes it off the people who ran our economy off the rails and steered their own companies into the grave."
- Where's the Proof of Disinformation? The Goldman Sachs lobbying papers Taibbi cites, writes the New York Times' Cyrus Sanati, "do not show unequivocally" that the firm was misrepresenting data. "It just shows data, without any interpretation." That said, "the summary page ... clearly shows that Goldman wants senators to believe that further bans on naked short-selling would be be detrimental to the market--a view that many believe goes against conventional wisdom."
- Overstates the Impact of Naked Shorting The Atlantic's own Megan McArdle is no Taibbi fan, and she predictably pans this latest post. "Taibbi seems to be more worried about the moral offensiveness of the practice than its actual impact," she writes. Diving into the details, McArdle's not convinced that halting naked shorting should be an SEC priority, though those who misuse the practice should certainly be punished.