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Are Short Sellers Freezing Credit Markets?

The big, scary stuff that's going on in the credit markets -- including the rising, commerce-choking interest rates on loans and credit default swaps -- might be rooted, in part. to bans on short selling meant to protect financial companies in the stock market.

The theory is that the shorters -- key money-makers for hedge funds -- have fled to the unregulated credit markets.

Bloomberg's Shannon Harrington, in an article about rising debt costs:

After the U.S. Securities and Exchange Commission last month banned short-sales on the stocks of 969 companies including GE and Textron, investors may be using credit-default swaps to bet against companies, said Sameer Gokhale, an analyst with Keefe Bruyette & Woods Inc. in New York, in an interview yesterday.

``You can still short in the credit markets,'' Kleinbaum said.