To the Editor:

Re: “Sold Short: American Capitalism at Its Finest,” Opinion, March 25

This author’s very interesting column has one problem — or shortcoming. He addresses the issue of short selling as a fundamentally negative operation that is “invested in market failure.” This is a simplistic view of short selling that flies well with the public’s general feeling of indignation towards Wall Street.

Short selling has, in fact, many qualities. Studies show from the research conducted by hedge funds that short stock is more thorough, and they are often the ones that uncover hidden management failures. They put a strong pressure on management to be healthy, as no one company wants to be shorted. The short sellers also check the strong pressures to have an artificial positive market. The opponents of short selling should refocus their critics on the actors who, under the premise that the market should always grow, produce artificial growth. The current crisis bluntly illustrated the problems that happen when the markets are blindly pursuing growth. The short sellers were right. Society was blind. This author is targeting the wrong actors. The irresponsible actors are the AIGs, the Lehmans and others, who thought that crazy leveraging and derivatives were the solution for an ever growing market.

The author addresses an important issue, however. Regulation of the financial markets. Naked short selling is a perversion of the financial markets. The fact that it was already illegal but still done by many actors speaks for itself: the regulatory and supervisory frameworks of the US must evolve. We can only hope that the U.S. will overcome its allergy to regulation and find solutions in co-operation with the world at the G20 meeting in early April.

So, yes­ to short selling, yes to innovation, yes to risk. But with responsible rules.

Luis-François de Lencquesaing ’09