Tuesday, September 23, 2008

UPTICK rule and MARK to MARKET rules

Congress "has its bowels in an uproar", to use one of father's old sayings, and in no productive way. I'll go no further than that with this analogy. Whatever comes out of their dangerous game of chicken with the Fed and Treasury, there are three things that can be done now that will make any plan come out much more smoothly. Oops, sorry.

This is mostly repetition from various posts that began March 10. There are many others who agree as well and who can rant in a more public way, from Jim Cramer on the regulating of short sellers to Bill Issacs, former head of the FDIC, on mark to market accounting. The three actions are:

---Reinstate the uptick rule and monitor it
---Enforce rules against naked short selling and rumor mongering intensely, and put in some enforcement teeth that mean something to very wealthy people, things like revocation of securities licenses, big fines, and jail.
---Revise the mark to market accounting rules asap. Mark to market rules that require marks to markets that don't exist have no doubt led to the credit default swap crisis, as credit default swaps are essentially mechanisms to short sectors of the bond markets, mostly mortgage securities to date but you can bet that credit card and auto loan securitizations now have targets on their backs. Shorting the bond markets based on forced price discovery in illiquid and thin markets has been a disaster for entire companies, for pension funds and individual investors, and of course a bonanza for a limited number of traders.

Isn't it strange that so many congressmen rail against "bailing out Wall Street and the rich" while the absence of these rules and regulations are creating huge wealth for a relative handful of professional traders who do not create jobs for our economy and do not provide useful products to improve the standard of living for the broad economy. All's fair in their free markets. Some might say you could say the same about Wall Street, but that decimated area employed tens of thousands of people(120,000 have lost jobs so far in this panic) and found equity and debt financing for productive investments for many companies. These trading shops, the predatory market manipulator SAC Capital is a perfect example, employ a few hundred people and have no goal other than taking cash out of the market. Why no fair regulations for these firms?

Implement these rules and then give the Treasury and Fed at least enough ammunition and discretion to go out and begin clearing the markets. With those rules addressed the Fed will ultimately have a chance of breaking even or possibly making money on the taxpayer's investments over several years and restoring credit markets today.

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