Don't Blame the Shorts: Why Short Sellers Are Always Blamed for Market Crashes and How History Is Repeating Itself

Overview

Listed in Bloomberg’s TOP 50 BUSINESS BOOKS OF 2010 and shortlisted for Spear’s FINANCIAL HISTORY OF THE YEAR AWARD

“Robert Sloan works in the hedge-fund industry. As he shows in this readable polemic, dislike of shorting has a long history. . . . Someone has to point out when the emperor has no clothes. The shorts were among the biggest skeptics of the subprime-mortgage boom and of the banks that financed it. And when they were proved right, their activities were banned. ...

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Don't Blame the Shorts: Why Short Sellers Are Always Blamed for Market Crashes and How History Is Repeating Itself

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Overview

Listed in Bloomberg’s TOP 50 BUSINESS BOOKS OF 2010 and shortlisted for Spear’s FINANCIAL HISTORY OF THE YEAR AWARD

“Robert Sloan works in the hedge-fund industry. As he shows in this readable polemic, dislike of shorting has a long history. . . . Someone has to point out when the emperor has no clothes. The shorts were among the biggest skeptics of the subprime-mortgage boom and of the banks that financed it. And when they were proved right, their activities were banned. Gratitude, huh?”

The Economist

“If Robert Sloan manages to go the distance in Don’t Blame the Shorts, it is because his book is as much about historical tensions between Washington and Wall Street as the practice of short selling. He puts it all in the context of the opposing views of the federalist Alexander Hamilton, who was pro-speculation, and Jeffersonian republicans, who were pro-agriculture and convinced that making money from money was nonsense. . . . His book is a useful corrective to the view of short selling as ‘unpatriotic’ or uniquely antisocial . . . it is a brave act to take on anti-finance populists at this time.”

Financial Times

“In this knowing book about the business of short-selling stocks, financier Robert Sloan gives a modern day lesson on why we shouldn’t shoot the messenger. . . Rather than blast short sellers, we should praise them for exposing management methane. . . .The story may be old, but Sloan’s easy and informative writing makes for a thoroughly worthwhile update.”
Barron’s

”Bob Sloan, a Wall Street veteran, cites the confrontation in his new book, Don’t Blame the Shorts, as evidence that blind fury from politicians and unrepentant shrugs from bankers are far from new. As the title suggests, Sloan’s main thrust is to defend the practice of short-selling. . . . Today, Sloan says, the very same battle of ideas is being played out in America . . . this is just the latest bitter expression of the constant tension between a moneyed east coast financial elite, and the manufacturers, mom-and-pop shops and the scrappy entrepreneurs who bitterly resent the power of Wall Street—but don’t want the cash taps to be turned off.”

The Observer

“Timely, concise, accessible to the lay reader and with a decorously polemical edge, it is both revealing and entertaining. No matter what the politicians do, the markets will find a way to challenge the finaglers and the optimists who sustain them. Like the poor, the shorts will always be with us.”
Spear’s

“Post-crisis reading . . . best books on the financial crisis and its aftermath. . . . While other authors point accusing fingers, in his book, Don’t Blame the Shorts, Robert Sloan leaps to the defense of short sellers who, as he describes, have been long scapegoated for market crashes and are once again in the wake of the recent crisis. The Dutch East India Company was blaming its troubles on them as far back as 1609.”

Economist.com

“This book is a rare treat. Unlike most books about Wall Street, it is written from a perspective sympathetic to the banking and securities industries. Better still, Bob Sloan is not only a practitioner and market participant himself, but one with a fine sense of history. Sloan rightly describes prime brokerage as ‘the largest, most unnoticed banking system in the word.’”
Global Custodian

“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.”
Instablog

“Sloan’s recent book…provides an excellent survey of the shorting debate. Sloan recounts how a succession of U.S. government agencies have enacted rules over the decades to restrain short sellers—usually in the aftermath of financial crises such as the one we have just endured. Sloan believes those rules have always had counterproductive results. Sloan’s book is a smooth read, mainly because he has done his homework and has lots of entertaining scoundrels and inept politicians to write about… Sloan’s work provides a real service to market regulators and practitioners alike. With a deft quill, he exposes the futility of government regulation while offering a useful back story to the views of contemporary market regulators.”
ABA Banking Journal

About the Book:

On the 80th anniversary of the Crash of 1929, we find ourselves peering backwards through a virtual looking-glass to a time when global markets were in free fall, and venerable financial institutions were in tatters. Yet, here in the present, these same patterns seem to repeat, causing cable newsers, Congressmen, and commoners alike to scream the same refrain, "Blame the short sellers!"

Certainly, short sellers make convenient villains; for one thing, they win only when others lose. But in Don't Blame the Shorts, Bob Sloan taps into a 200-year-old American debate to convincingly and emphatically argue that short selling is not what ails our equities trading markets, but what keeps them honest. To Sloan, short sellers’ objectives are simple: find overvalued securities and bet against overconfident investors. It's an approach that uncovered widespread fraud at Enron, WorldCom, HealthSouth, and other failed outfits long before regulators ever set foot in the door.

Taking the long view of history, Sloan unearths the deep roots of the conflict over speculative investing and its role in our economy. It's a debate that oftentimes puts titans of American history and finance on opposite sides of the divide: Jefferson and Hamilton, over the fundamental nature of America's economic systems; a century later, J.P. Morgan and William Rockefeller, the brother of John D. Rockefeller, who was thought to be part of a cabal of short sellers that brought the country to its financial knees. Further, Sloan reintroduces us to the likes of Ferdinand Pecora, the federal prosecutor whose investigations in the early 1930s revealed a wide range of abusive practices of banks, and led to the creation of vital legislation, including the Glass-Steagall Act.

Don't Blame the Shorts is an eye-opening account that overturns conventional wisdom about short selling, and the vital systemic (and symbolic) role it plays in making financial markets less opaque, more accountable, and, therefore, stronger.

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Product Details

  • ISBN-13: 9780071636865
  • Publisher: McGraw-Hill Professional Publishing
  • Publication date: 11/5/2009
  • Edition number: 1
  • Pages: 272
  • Product dimensions: 6.38 (w) x 9.28 (h) x 1.06 (d)

Meet the Author

Robert Sloan is the Managing Partner of S3 Partners, a global financing specialist firm dedicated to helping its hedge fund clients optimize and best manage prime broker relationships, which he founded in 2003.

His book How History is Repeating Itself was nominated for Spear's book awards shortlist—financial history book of the year; Bloomberg and The Economist recognized it as one of the top business books of the year. Sloan has appeared on CNBC, CNBC Europe and C-SPAN.

Prior to S3 Partners, Sloan was a Managing Director, the Global Head of prime brokerage, equity finance & delta one products, and a Member of both the securities division operating committee and the product managers committee at Credit Suisse First Boston. In 1998, he founded and chaired the Dow Jones Credit Suisse Index Co. This was the first investable benchmark index for alternative investments.

From 1989 to 1996, Sloan worked at Lehman Brothers in the equity derivatives and central funding unit. Prior to his career on Wall Street, he was a speech writer and translator for the Ministry of International Trade & Industry (MITI), Tokyo, Japan. Sloan holds a Bachelor of Arts from Washington & Lee University.

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Table of Contents

1. History Repeated
2. Assumption, Hamilton, Jefferson, and Financial Speculation
3. New York Is Our Financial Center; Washington Political
4. East Versus West and Frederick Jackson Turner
5. Money Trusts
6. "The Paranoid Style"
7. The Loan Crowd
8. The Crash of '29
9. Rumors, Foreign Powers, and Bear Raids
10. Missouri-Kansas Pipeline
11. The Villain Becomes Apparent
12. The NYSE Was the First Prime Broker
13. Pecora Winds Up and the Shorts Unwind
14. What Is a TICK?
15. The United States Versus Henry S. Morgan
16. Circuit Breakers
17. The Largest Unregulated Banking System
18. Today As Yesterday and the Day Before

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Sort by: Showing all of 2 Customer Reviews
  • Anonymous

    Posted January 28, 2010

    History repeats itself

    Great book, especially for American history buffs. It's really an interesting look at how politicians always took advantage of the fear of big banks and Wall Street. It goes back to Thomas Jefferson who wanted to protect the farmers and little guys from New York City "speculators." Very reminiscent of what's happening in Washington today.

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  • Anonymous

    Posted January 27, 2010

    Terrific History of Main Street vs. Wall Street and the battle to stop short selling

    This book truly captures the lessons to be learned from the attack on short sellers in 2008 and why Wall Street and Main Street are at odds. It takes you back to Hamilton and Jefferson and the country's hate of financial speculation and its need for speculators to spur the economy.

    It goes deep on the history of the 1930's market crisis and how attacks on short seller then (including Congressional inquiries and bans) were replicated in 2008, with the same disastrous effects.


    He also examines the work of the Pujo and Pecora Commissions, and how they tried to stop shot selling.

    Even Christopher Cox gets a look. It is so ironic that the same Christopher Cox was a defender of short selling in '89 and later initiated the short selling ban. What a disaster.

    Sloan says that history will repeat itself. What the shorts get blamed again when the market meltdown.

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