Blame The Short Sellers?


The controversial short sale ban just ended and some pundits can’t help but wonder if it’s behind the downward spiral in at least some stocks.

Take Morgan Stanley . The investment bank plunged Thursday with some traders blaming the steep drop on short-sellers.

The ban has been a sore point on Wall Street over the last few weeks. Before the ban, regulators had said short selling widened the scope of the financial crisis and contributed to the collapse of Lehman Brothers.

But hedge fund managers including billionaire investor Bill Ackman claimed the ban did more harm than good by rattling investor confidence. Other investors said the ban -- which started with 799 financial companies but had grown to almost 1,000 firms -- hurt their ability to manage their portfolios.

Celebrated short-seller Bill Fleckenstein told us he's irate about the ban because it interfered with the market’s ability to correct. For further insights on short selling we turn to Fleckenstein again.

“What you’ve seen over the past 10 days is the consequence of having a real estate bubble and housing bubble and no regulation,” he says. "But the government can’t stop the market from doing what it’s going to do."

And ban or no ban he “would not be short this market. I don’t want to get caught in the turn that I think will come."

His solution is quite simple. “I think we ought to not make the problems worse.”

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Trader disclosure: On Oct.9, 2008, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders; Terranova Owns, (AAPL), (EOG), (EXM), (FTO), (FCX), (GS), (MA), (NOV), (POT), (X), (VLO); Jon Najarian Owns C preferred, WFC preferred, JPM preferred; Karabell Owns (MS), (JPM), (IBM), (AAPL), (GOOG), (FCX), (GLD), (CAT), (AGU); Seymour Owns (MER), (F), (BX) (GE) with wires