Here’s an excerpt from David Merkel’s article on The Aleph Blog. He briefly discusses short-selling and the new RTC (Resolution Trust Corporation).
Government Policy Created Too Hastily
Excerpt:
"I have been no fan of naked short selling; I have long argued that the brokers must locate shares before a short sale can be done. Anything less than that is fraud. But I do not support eliminating shorting, even though I almost never do it. What would be the effects of eliminating shorting?…
…Eliminating shorting is stupid. Enforcing getting a locate is smart.
Now for something that could be smart or dumb, depending on how it is done. The possibility of a new RTC could be a good or a bad idea. The main criterion is whether it is proactive or reactive. My answer my surprise many: reactive is good, proactive is bad.
What we don’t want to do is provide a place for companies to dump lousy assets at inflated prices. Instead, a new RTC should be a last resort place that the assets of failed companies go to until they are disposed of. Common and preferred equity should be wiped out, and bondholders should take haircuts. New loans should be senior to all old loans, similar to the situation with AIG.
Anyone going to the new RTC should feel pain, and a lot of it…"
Full article here.
