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A Solution to Naked Short Selling?

Cramer has railed against naked short selling throughout the entire credit crisis. And he’s been quick to blame the collapse of at least a couple of the market’s bellwether companies on the traders who do it. Luckily for the rest of us, it looks like a group of US senators have found a solution to the problem.

Short selling is the practice of borrowing shares from a stockholder, selling them and then, hopefully, buying them back at a lower price. But naked short sellers manipulate the market by not first borrowing the shares. The end result is an overall loss of confidence in the market, and sometimes the destruction of average Americans’ net worth.

But Ted Kaufman, a Democrat from Delaware, is part of a team of senators who want to institute a “hard locate” system that would require short-sellers to find and identify specific shares of stock with a unique ID number before brokers would be allowed to execute the trade. Cramer said it would “stop unscrupulous hedge funds from being able to sell shares that they ultimately won't be able to deliver.”

The senators recently wrote to the Securities and Exchange Commission to propose their idea, and Cramer wanted to hear more about it. So he invited Senator Kaufman to appear on Mad Money. Watch the video for his full interview.

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