Brian_Kerhin's Blog

An investor thinks a stock's value is about to drop, so he places a bet on it, using a practice known as "short selling."

It's one way to make money when the market is sagging. But can it also be blamed for big drops in the Dow?

Recent restrictions on short selling inspired one of three questions in this edition of "Ask AP," a weekly Q&A column where AP journalists respond to readers' questions about the news.

If you have your own news-related question that you'd like to see answered by an AP reporter or editor, send it to newsquestions@ap.org, with "Ask AP" in the subject line. And please include your full name and hometown so they can be published with your question.

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The folks at AIG have gotten billions in assistance from the government, and yet they paid $440,000 to send executives on a weeklong spree at a California resort - and then another $86,000 for a hunting trip to England. My question is: Can the government demand repayment for these costs from the company or its executives?

Carlbert L. Rick
Burbank, Calif.
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At this point, there doesn't seem to be an answer to that question - and you're not the only one who's asking it.

Federal Reserve spokesman Dave Skidmore says the Fed has received similar questions from members of Congress, but hasn't formally responded to their inquiries. One reason there may be no answer yet is that we're in a brand new era of government ownership of companies, and it's not yet clear how much oversight the government plans to have over corporations like AIG or banks in which it's buying billions of dollars of stock.

It's quite possible that with enough of a public outcry, the government might find a way to force executives to pay back the money spent on such excursions. But until government officials offer more details on how they plan to oversee financial companies, there's no way to know whether they'll have the power to do that.

Ieva M. Augstums
AP Business Writer
Charlotte, N.C.

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Is it true that the ban on short selling has expired or been reversed as of Oct. 10 or before? If so, could short-selling activities be contributing to the continuation of major declines in U.S. stock markets?

Richard Lippincott
San Jose, Calif.
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That's right, the government's three-week-long ban on short selling - betting that shares will fall - in the stocks of nearly 1,000 financial companies expired on Oct. 8.

In short selling, a practice that is legal and widely used on Wall Street, you borrow a company's shares, sell them, and then pay for them when the stock falls and return them to the lender. The short-seller pockets the difference in price.

Federal regulators said earlier this year that the practice worsened the financial crisis and contributed to the collapsing values of bank stocks in particular, as well as the demise of Lehman Brothers.

But some market experts say the first-time ban on short selling by the Securities and Exchange Commission - an effort to shore up investor confidence - did more harm than good at a time of historic market volatility. Many investors contend it's unfair to blame short sellers for causing stock prices to slide, noting that the Dow Jones industrial average had its two biggest daily point drops ever after the short-selling ban went into effect.

And some say short sellers can actually act as a cushion during declining markets, snapping up falling shares to cover their positions. When they complete a short sale by buying a stock that's fallen, they're often buying shares that other investors don't want - and that helps push prices upward.

The massive losses and sharp swings in the stock market in recent weeks appeared to stem mostly from investors' anxiety over strained credit markets and fundamental factors like the economic outlook.

Marcy Gordon
AP Business Writer
Washington

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Is the Russian "Merchant of Death," Viktor Bout, still operating?

Olivia DuPlessis
South Portland, Maine
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It depends on whom you believe.

Certainly the evidence is convincing that Russia's Viktor Bout was a major arms trafficker in the 1990s and well into this decade, and his alleged violations of arms embargoes on warring African states was enough to earn him a place on a U.N. travel blacklist and asset blockages by the U.S. government.

He insisted his role was simply to provide air transport, and what was carried was not his responsibility. His profile has lowered considerably in recent years, and he has stayed mostly in Russia, where he claims to be a simple, legitimate businessman.

There are allegations but no firm proof that his old network helped supply weapons to Colombia's left-wing FARC terrorist group through Venezuela. It's worth noting that his March 2008 arrest in Bangkok, Thailand, was the result of a sting operation by U.S. agents who lured him there from Russia posing as buyers for FARC.

A Thai court has been holding hearings on a request from Washington for Bout's extradition on terrorism charges.

Grant Peck
Associated Press Writer
Bangkok, Thailand

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Have questions of your own? Send them to newsquestions@ap.org.