One Sided Capitalism

 Even when one limits his knowledge and quittance of the SEC and its actions to just reading its short selling regulations he would still wonder how could that reflect an intention of just and fair treatment for everybody in the market? Why take all that complicated path in "regulating" shorting just to keep open paths for naked shorting? Why would one avoid the simple rule that no one should sell a stock that he could not deliver ? Why is the stock market treated different than all other  things in the world in that regard? How could that be seen as unbiased treatment for everyone in the market? What kind of reasoning on which it stands? Liquidity? Is that a worthy trade off for allowing someone to sell what he cant deliver? Why would that apply only to the stock market? Who said the stock market should always provide liquidity? In any case, it certainly does not with or without such rules. What does it even mean? When liquidity comes through the reduction of value caused by naked short selling how much would there be a difference for its existence from its nonexistence? Should a situation where a stock worth $100 a share find a buyer at $0.01 a share be seen as significantly better than a situation where there is no buyer for the stock just because there is liquidity in the first?

But these regulations where not made for the sake of everybody. These regulation allow manipulation of the market and clearly the ordinary person without the sufficient financial power cannot take advantage of that. Even limited shorting is not much for the ordinary person because it involves unlimited upside risk. Also unlike buying stocks long you need the help of your broker to find you shares to short. That involve connections and relationships which are clearly much more in the domain of power for hedge funds than the ordinary person. Notice that how liquidity as a reason did not come from far away to this mental set except that these regulations were intended to help those with big liquidity in manipulating the market instead of really helping the market with liquidity.

 

These regulations not only violate the principles of justice and fairness but they also violate the principles of capitalism making it one sided application. For although all the importance is given to the capital in the hands of those with big liquidity, when the ordinary person hold an asset its existence is not that important and selling it without really delivering it is allowed.    


[Added (8/10/2014): "quittance" above was intended to be "acquaintance" ]