Short Sellers Don’t Burst Bubbles

Bill Ackman appeared at the WSJ’s Deals and Dealmakers conference today. And Megan Barnett is quite right, he really did say this:

You couldn’t short single-family home prices rising. That’s why there was a bubble in single-family home prices. And interestingly only when there was a mechanism to go short housing, basically the ABX index, did the bubble finally burst.

Now there is a grain of truth here: housing is a leveraged long-only play, and that’s a good way of fuelling a bubble. But there’s no way that the ABX index is responsible for the bubble bursting. For a long explanation why, see here, and a follow-up here.

I think short sellers are, on balance, a good thing for the markets. But I also think they’re puffing themselves up a little too much if they think that they’re either necessary or sufficient for a bubble to burst. They’re neither.

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