If short selling was incorrectly forcing down stock prices, someone could make a lot of money

If you knew that short selling was forcing down a stock price below its true value, what would you do? You would buy the stock and make some money. Here is my test: if those pushing the regulations are so smart, they should be making a lot of money. Anyway, this from the WSJ.

While it appears likely that the agency will adopt some restrictions after the 60-day comment period, the details remain uncertain, as the SEC still must winnow down a menu of ideas due to Republican concerns. There are three Democrats and two Republicans on the commission.

The proposals were largely welcomed by banks, which had been pleading with the SEC to rein in short selling. The American Bankers Association called Wednesday's move "balanced and reasoned" and predicted action will limit "downward stock spirals and restore investor confidence."

James Chanos, a short seller who runs a New York hedge fund, warned against "ill-conceived government intervention" in markets. "Proposals to inhibit short selling have the effect of limiting [a] vital market-based antidote to corporate fraud and speculative bubbles," he said.

The proposals are the first of SEC Chairman Mary Schapiro's tenure. During the meeting she didn't take a specific position on the proposal.

Financial institutions blame hedge funds and others for driving their stocks lower, particularly during bouts of market volatility such as the one last fall around the collapse of Lehman Brothers Holdings Inc. The SEC already has taken action to restrict "naked" short selling, in which traders sell stock they haven't borrowed. Defenders said short selling helps investors hedge their bets and adds liquidity to the market.

In recent weeks lawmakers in Congress have pressured the SEC to restore the "uptick rule," which originated in the Depression and was eliminated in 2007. Under that rule, a short sale can only happen when the last sale price of a stock was higher than the previous price. It was meant to prevent a rush of short selling that drives a stock lower. . . . .