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Shorts are Heroes


Al Jazeera asked five prominent economists - Does the [2009 bank liquidity] crisis signal the end of US-style capitalism?

Of the five, John Berlau, of the Competitive Enterprise Institute (CEI), is the contrarian. In his reply, Berlau says:

everyone is bashing the short sellers but they are heroes—they were right and we should have been listening to them years ago.


Short sellers are providing information about the value of a company. They assess the value to be lower than the price. Rather than putting hands over ears to shut them out, the wise would take an increasing short interest as a signal to re-verify their valuation judgment. What do the shorts see that the mass of the market is missing? Nobody gets smarter through ignorance.

If the Chorus of Doom is correct, and the US economy is collapsing, short sellers are the smartest people on the trading floor. One should hope whoever manages their pension and 401k portfolios would follow the shorters. Current regulations prevent this. Mutual funds cannot go short like the smartest guys. Instead, the common man is being jawboned into accepting more limits on the growth potential of his life savings.

Berlau’s initial answer to the question:

Is this the end of US capitalism? No, because we haven't had pure capitalism for a long time.

He has taken the time to look for facts unseen. It is emotionally satisfying to blame whichever agent should be the enemy according to one’s biases and worldview. Truth is usually more complex than rhetoric. It is intellectually satisfying, I think, to look deeper.

And you can’t pay the rent out of feelings.