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Don't Blame The Shorts

Robert Sloan's Don't Blame The Shorts not only delineates the history of short selling in America, but also chronicles the centuries old chasm between Main Street and Wall Street. Sloan starts spinning his yarn right after the Revolutionary War and states: "Many felt in 1790, as many do now, that compensation made through financial speculation is unjust, and short selling is the most unjust of all.". So begins the tale that is not an edge of your seat page turner, but a clear and concise historical account that will be of interest to students and participants in the capital markets system.

A common thread throughout the book is that after each boom and bust cycle in the stock market, populist fervor against short selling explodes in the aftermath of the crash. As Sloan notes: "The argument against the shorts were designed to appeal to the uninformed and easily scared masses, and history would allow this particular scapegoat strategy to be so effective that it would resurface with each subsequent financial crisis through the twenty-first century.". Time and time again the government would become involved with Senate subcommittee hearings, but could never prove that short selling was a cause of stock market implosions.

As to be expected, a good portion of the book covers the 1930's and The Great Depression. Both Hoover and FDR spearheaded investigations into short selling and the bear raids that were supposedly the cause of the country's economic strife even though short selling only accounted for 5% all exchange transactions from 1929 - 1932. There was such a stigma attached to being a short seller in the 1930's, that in 1932 the New York Times published the names, addresses and photos of those who were short more than 2,500 shares of a stock. However, the author does not believe our current crisis reflects the era of the 1930's, but more or less parallels that of the Crash of 1907 when overpriced real estate caused a run on the banks.

You can infer from the title Don't Blame The Shorts that author Robert Sloan is pro short selling and in fact, is of the opinion that shorting is good for the markets. As Sloan remarks in the epilogue: "Short sellers function as the police officers to markets - the editors - the very checks and balances our forefathers envisioned. The shorts are a disinfectant, shedding light where there is only corporate darkness.". I liked this book. It was short and to the point and very well researched. As we are living in an era of history repeating itself, Mr. Sloan depicts the negative market psychology that has transcended Wall Street since the birth of our nation.