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Kai Ryssdal: The Securities and Exchange Commission was working this weekend, too. Yesterday, the SEC announced a crackdown on the spread of false rumors. True rumors are OK, I guess, but regulators are worried about gossip that threatens financial stability. Like the reports at the end of last week that Fannie Mae and Freddie Mac were running short on capital. Marketplace’s John Dimsdale points out that limiting rumors in a place like Wall Street isn’t so easy.
John Dimsdale: The Securities and Exchange Commission today stepped up its review of the rules that stock brokers are required to have to prevent the deliberate spread of wrong information to manipulate markets. SEC Chairman Christopher Cox says rumor mongering is a particular problem in a fast-moving market like this one.
Christopher Cox: For several months going back to March in particular and the very rapid demise of Bear Stearns, the SEC has been enforcing and investigating the manufacture of false information for the purpose of profiting and manipulating securities prices.
Banks right now are vulnerable to rumors they don’t have enough capital to meet their obligations. Short sellers, who bet that a stock will go down, are accused of spreading false reports of financial trouble, to cash in on falling prices.
Richard Sylla: Rumors have been a problem on Wall Street for 200 years or basically as old as Wall Street’s been a financial center.
Richard Sylla is a financial historian at NYU.
Sylla: We call them stock and bond markets but really they’re information markets of which way interest rates are going to go, how well is the economy doing. I think it’s very easy to crack down too hard on speculators or rumor mongers, you know, and then destroy the information that is the lifeblood of the market.
SEC Chairman Cox says the new enforcement action cracks down only on rumors the disseminator knows to be false. He says stock traders, whether short or long, will still have full access to accurate information.
In Washington, I’m John Dimsdale for Marketplace.
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