Short Sellers: The Unsung Heroes of the Financial Crisis

By Dean Baker - September 15, 2009, 5:33AM

Last year, as the collapse of the housing bubble was threatening to turn Wall Street into a pre-industrial economy, many leading financial commentators were blaming short-sellers for the meltdown. They argued that the fundamentals of the financial industry were essentially sound. The only problem was that evil short-sellers had teamed up to push the price of the stock of Bear Stearns, Fannie Mae, Freddie Mac, AIG and the rest into the toilet. In response this outcry, the Securities and Exchange Commission actually took steps to limit the shorting of financial stocks.

As should be very clear in retrospect, the problem was not the shorts. The problem was that the clowns who ran these institutions somehow failed to see the largest asset bubble in the history of the world. As a result, they made huge bets that went bad, and drove their companies into bankruptcy.