But even if all 33 million fails-to-deliver on September 11 were illegal naked shorts, Bloomberg writes that Lehman’s public float (the total amount of outstanding shares) was 688 million. Would illegally shorting an additional 5% of the stock cause it to go under? I don’t know for sure it wouldn’t. I’m just asking.

More important, Matsumoto and Bloomberg give short shrift to the idea that Lehman, you know, was a dead man walking anyway. The company was levered to the hilt with dog assets. Has anyone besides Dick Fuld said the company wasn’t? If Citigroup or GM goes down are we going to blame short-selling, naked or otherwise?

And the Bloomberg piece leans on sources whose credibility is questionable. Harvey Pitt, the former SEC chairman for one. Not many people think he was good in that position—to say the least—but he now runs a company that relies on the threat of short-selling rules and prosecutions to get business. Bloomberg calls it “a Web-based service that locates stock to help sellers comply with short-selling rules.”

Another key source, Susanne Trimbath, says this:

The daily average value of fails-to-deliver surged to $7.4 billion in 2007 from $838.5 million in 1995, according to a study by Trimbath, who examined data from the annual reports of the National Securities Clearing Corp., a subsidiary of the Depository Trust & Clearing Corp.

But couldn’t that be explained by the increased volume of trading in the same period? I went back and looked at average daily volume on the Dow Jones Industrial Average. In 2007, it was about 3.5 billion shares per day. In 1995, it was about 350 million. If trading volume has increased by ten times in that span why is it suspicious that fails-to-deliver have increased by less than that?

Again, I’m not close to being an expert on this issue, but some of this stuff just raises obvious questions.

I don’t want to discourage the press from looking into this issue. Far from it. But it can do much better than this.


See this interesting Felix Salmon interview of his Portfolio colleague Gary Weiss, who’s one of the most vehement critics of those who push the nefarious naked-short-sellers theory, about this story. It’s worth a read.

I feel about like Salmon does here: The story was way overwrought, but there’s enough smoke here that it needs to be explained.

Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at rc2538@columbia.edu.