Bad Shorts
SEC Chairman Mary Schapiro
The S.E.C. announces the reimplementation of the uptick rule. The uptick rule had been in place for over 70 years. It was removed two years ago in 2007. At the time everyone was amiss as to why the rule was removed. But, now the indication is that they want to implement it, to punish or get rid of naked short sellers, or short sellers in general. commission chairman Mary Schapiro says she’s feeling the heat from investors, exchanges and companies about short sellers. The staff are discussing five different short selling proposals, two versions of the uptick rule was discussed. There will be a period for them to vent the discussion amongst investors to get feedback on the rule. They unanimously decided to put them out for public comments up for 60 days.
The uptick rule was implemented back in 1929 along with the rule to separate investment banks from commercial banks. The bank rule was dismantled in 1999 and the uptick rule was taken away 2 years ago. It is very telling that both these rules, along with others were removed and here we are back in a position similar to 1929.
Stock Market
Discussion on MSNBC pointed out that credit default swaps will do the same thing as short selling anyway, so the uptick rule will not do anything to circumvent or punish short selling in general. They think that the uptick rule will restore confidence, if nothing else for psychological peace of mind. But, you can connect a credit default swap, with out of the money puts, and then short without the uptick and drive the stock down. So the credit default swaps, synthetics, derivatives, exchange traded funds which are all forms of shorting. Clearly this uptick rule is not the magic bullet, but it will be for the S.E.C. to decide along with the investors they listen to.
Lehman was called when they were bubbled up. AIG was called well before it was even thought to be falling. Shorters serve a purpose just as traders do.
To Detarp or Not Detarp
The treasury department is refusing large banks to pay back their tarp money. Some of the major banks have asked to de-tarp themselves. There is some debate if the government would accept it. They think that if one of the large banks paid their Tarp money back, the other ones would feel pressured to pay back theirs.
Lehman Brothers
The debate is if they pay it back and come back six months later, we are in the same position as we were before. The rational issue then is should we let them fail if they pay the money back and then come back six months later. If not you there goes the government inflating to running companies even more so. We would have the government firing CEOs, guaranteeing lube jobs for your car from GM, handing out toasters at the local bank. It’s as if America is sleeping and the government is in fact become a George Orwellian big brother.
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AIG to Washington
