It’s not just Goldman Sachs and some shrewd hedge fund managers who shorted stocks and fixed income securities during the financial crisis.
Congressmen reportedly did, too. There’s nothing illegal about that, of course. But some of the Congressmen who went short also publicly criticized Wall Street for doing the same thing.
The Wall Street Journal found 13 members of Congress or their spouses who used exchange traded funds to go short in 2008. Some booked profits, and some suffered losses.
As for the hypocrites, Sen. Johnny Isakson, R-Ga., argued on the Senate floor in February: "We don't need those speculating in the marketplace to take unfair advantage of the values of equities that are owned by Americans all over this country for the sake of making a buck on a short sale."
But in October 2008, Sen. Isakson’s account invested more than $30,000 in funds that short Treasury bonds using leverage. A few Americans own Treasuries too.
There is nothing wrong with shorting stocks and bonds.
"You can't have people not using their best judgment on their investment portfolio," former Rep. Joel Hefley, R-Colo., who once headed the House Ethics Committee, told The Journal.
But perhaps those who are going short shouldn’t criticize others who do the same.
A recent study by University of North Carolina finance professors Joseph Engelberg and Adam Reed shows investors who go short benefit from their analytical prowess, not unfair trading tactics.
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