The Uptick Rule

Adam Warner of the Daily Option Report blog has posted extensively and exhaustively on the whole uptick rule controversy (more recently here, here and here). What Adam keeps saying time and again (because nobody else is saying it and that is truly galling) is that those people who are intent on and capable of destroying a stock or "launching a bear raid" to echo the hysterical rhetoric never needed an uptick to get short in the first place. At the proprietary shops I traded in the late 1990's, "bullets" were all the rage. I want to be really careful here but one can make the case (and some have) that many traders were using bullets (long stock and long deep in the money puts) specifically to circumvent the uptick rule. Other strategies were also used to the same effect and by the time the uptick rule was repelled, something that was actually done progressively with intermediate steps and pilot stocks, it really didn't have any impact anymore.

I think what's going on is just another form of a phenomenon that takes place inevitably every single time there's a severe and prolonged sell-off: blame the short-sellers. It has always been that way and one can even argue that the uptick rule, which was instituted in 1934 in the wake of the mother of all sell-offs, was itself the result of a blame the short-sellers mentality. People want, need a bad guy every time there's blood on the street. And scapegoating the minority of people who make money when the markets go down, forgetting that they usually stand to go bust if they're wrong, is just too convenient politically to pass up.

Case in point, this from Thomson Financial (emphasis mine):
"The Chairman of the Securities and Exchange Commission said today that the SEC is closely examining whether market participants illegally colluded in an effort to short shares of Bear Stearns just before it had to be rescued by JP Morgan Chase and the Federal Reserve.In a Senate Banking Committee hearing today, Chairman Christopher Dodd of Connecticut said he is worried that the volume of trading in Bear Stearns shares indicates that illegal trading might have taken place. Dodd told SEC Chairman Christopher Cox that he hopes the SEC is examining this."Your hopes will be, I think, met and exceeded, with respect to the agencies' response to these concerns," Cox said in response, adding that that SEC's enforcement division is "very active on this."However, Cox indicated that he was restricted from speaking further because this process is ongoing."
The highlighted portion speaks for itself. It just means the scapegoats have been found and they shall be punished and made an example of.