Will The Proposed Ban of Short Sales Support Global Markets?

The US SEC is said to be contemplating to impose a temporary ban on short selling (CBS).

A ban on short selling is another form of price control. How? Because short selling to quote Gary Galles of Mises.org, “increases the number of people with an incentive to discover valuable information about firms' prospects, by providing an added mechanism to benefit from information that turns out to be negative. When someone's research or information leads them to negative conclusions about a firm, short selling allows them to communicate their less optimistic expectations to others and make a profit if they anticipate the direction the market will later come to agree with. That is, they profit only if they come to "correct" conclusions before others. In the process, they benefit others by revealing accurate information sooner than would otherwise be the case, reducing the mistakes people would have made from relying on the less accurate prices that would otherwise exist.” In short, a ban on short selling, attempts to inhibit price discovery.

It could be also seen as a form of “market manipulation” except that it is done by governments.

Of course, because curbing short selling means covering all existing short positions, the initial impact would be for the markets to soar. However, like in the recent example, where the US SEC banned short selling on 19 financial stocks last July 21^st,(but announced on July 16^th)…

Short term gain-long term woes

...the "soothing" effects proved to be temporary- for the Dow Jones Industrials, bank, financial and broker indices. Eventually market forces reasserted themselves by exposing the fallacies of camouflaging inherent weaknesses of why these stocks /market have been falling in the first place.

We never seem to learn.

The issue here is about financial system “insolvency” in the US and a ban on short sales will be a quick fix which is likely to only prolong the agony.