The SEC should listen to short sellers, not restrict them

Blogger Jeff Matthews has an intriguing idea for a new SEC chairman to replace the long line of ineffective empty suits who have done so little to promote integrity in the financial markets: Jim Chanos.

Who is Jim Chanos? One of the greatest short sellers of all time. Chanos was one of the first investors to call out Enron, and he's developed a reputation for sniffing out shenanigans that regulators have missed. Matthews writes, "in the world of 'protecting investors', we can't think of anyone more competent to spot a problem than one of the best short sellers who ever practiced the craft. "
Of course this will never happen and if it did, it would bring about a whole new set of problems. But Matthews' point is an important one: Short sellers may be at least as effective at protecting investors from shenanigans than regulators are.

So even if we can't have a great short seller running the SEC, the good news is, we don't really need one. Short sellers can do a great job bringing down schemes on their own, without the power of subpoenas and armies of lawyers. Penny stock millionaire (and fellow blogger) Timothy Sykes has, to his tremendous credit, recently been devoting a lot of energy to educating his followers about investment scams.

So the SEC can't give Jim Chanos the keys to the office, but here's what it can do: Get the hell out of his way. In recent months, the SEC has been exploring a slew of ways to reign in short sellers -- despite the lack of evidence that short sellers have had anything to do with the current financial crisis and overwhelming evidence that, had the warnings of short sellers been heeded years ago, many of the excesses that led to such a tremendous evaporation of wealth would have been avoided.

It makes no sense for a government agency that completely failed in its missions to devote its resources to persecuting people who did a better job executing its mission than it did. It's like a father who got drunk and forgot to pick his kid up after football practice screaming at the coach who took took him home for dinner so he wouldn't starve.
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