DJ Wire: SEC Curbs Shorting of Fannie, Freddie and Big Investment Banks

Last summer, in a last fling with deregulation, the Securities and Exchange Commission eliminated the uptick rule, which since the Great Depression had required that anyone who shorts a stock (sells now in hopes of buying it back later at a lower price) can only do so when a stock's last move was up. Done on the eve of the current financial crisis, this may well go down as one of the greatest blunders in U.S. financial regulatory history.

Today, the SEC ordered an immediate end to short-selling of stock without having arranged to borrow it from someone who owned it before the short sale. The emergency decree applied to all the major Wall Street brokerage firms, Fannie Mae and Freddie Mac. The SEC will undertake a rulemaking to permanently extend the new requirement to all stocks.

If you're wondering why this blog, which usually devotes itself to health care, is paying close attention to this story, it began Sunday when I opened my newspaper and saw that not a single paper -- not my Sunday New York Times and not my Sunday Washington Post -- had a single word about what was obviously the biggest financial story of late last week: the massive bear raid conducted by short sellers on two institutions that are the backbone of the U.S. home mortgage market. As a former financial journalist, I was simply appalled at the lack of even an effort to explain what was happening. It wasn't just regulators who failed the American people.