Just fix it!
To quote Saturday Night Live’s Kenan Thompson, there’s a short list of things that can be done quickly, and at no cost, that will go along way toward “fixing” the stock market. The SEC has allowed greed to run rampant by systematically changing rules that protected the average investor since the last Great Depression.
Here’s the list of “Fixes”
- Reinstate the Uptick Rule. This rule was designed to check unbridled short selling and was put in place by the nation’s first SEC Commissioner, Joe Kennedy, in 1937 with good reason. The SEC eliminated this rule in July 2007, which has allowed short sellers to pile on individual stocks and drive them down with alarming speed and frequency. If you’ve wondered why the indexes have been making those dramatic and frightening plummets, you can thank the repeal of the Uptick Rule for it. Many have begun to clamor for its reinstatement, including CNBC’s Jim Cramer, Steve Forbes and Ben Bernanke. A bill has been filed in the U.S. House to reinstate the Uptick Rule, H.R. 6517. POLL > Should Congress reinstate the uptick rule?
- Enforce Naked Shorting Regulations. Insist on a mandatory pre-borrow tracking cusip numbers … everything else is just clever shell game. “Oh sure I located shares to sell short … they’re in your grandmother’s wig.” Short sellers are supposed to “borrow” the real actual shares of a stock before shorting it. The SEC has failed to enforce existing requirements for shorting stocks, which allow shorts to go “naked” without completing a true borrow of the shares. This allows short sellers to “pile drive” down targeted stocks with no regard for playing by the rules.
- Mark to Market. This rule was put in place in 2007 and forces banks, insurance companies and other financial institutions to “mark” (price on their balance sheet) assets at their current market value. Yet under current conditions, only predators are willing to bid … insultingly lowball bids at that. This has resulted in another alarming death spiral for banks and companies holding positive cashflow assets that have been marked down to fire sales prices (pennies on the dollar) due to a total “buyers strike.” This can be fixed by amending FAS 157 “Mark to Market” and replace it with a “Mark to Model” where cash flows can be factored in valuation.
This deregulation of the markets while the SEC was asleep at wheel during the Bush Administration has resulted in the total destruction of the average investor’s retirement funds. It’s time for the current Administration to just “fix it.”
As a recent WallStreet Journal editorial explained, “If the president really takes Roosevelt’s legacy seriously, he should suspend mark-to-market accounting rules, restore the uptick rule, and enforce the prohibition against naked short selling. If he doesn’t, historians will look back in utter amazement at Mr. Obama’s preservation of Mr. Bush’s worst economic policies.”
Call or write your Congressperson and the Obama Administration to demand action. Tell them to “JustFix It!”