PIN The Blame On The SEC ?

OK, I admit it - the Blame Game is often petty, annoying and almost always Unbecoming. But that's only when insignificant people assign it to inconsequential events. The current Credit Crisis can be a lot of things but its definitely not inconsequential. Former FDIC Chairmen can certainly be a lot of things but they're also most definitely not insignificant. Quite to the contrary + due to their banking system 'powers', they're in fact perhaps the most influential and important officials in the WORLD. With that said, former U.S. FDIC Chairman William Isaac believes that the SEC deserves the most blame for the banking system's recent meltdown. He also has very strong feelings on the SEC's 2006 decision that required banks to value their assets using the ' Mark To Market ' accounting method vs. the previous practice of ' Fair Value ' accounting. Check out the below link which contains the CNBC video interview...some quoted excerpts below:


http://www.cnbc.com/id/27100454

"...The SEC has destroyed $500 billion of bank capital by its senseless marking to market of these assets for which there is no marking to market, and that has destroyed $5 trillion of bank lending...That’s a major issue in the credit crunch we’re in right now. The banks just don’t have the capital to start lending right now, because of these horrendous markdowns that the SEC’s approach required...Once they declare that there’s a 'systemic risk', the FDIC at that point can say that we’re going to protect all general creditors when a bank fails. If they do that, then I think the banks will start lending to each other again...It’s just a lack of confidence, because we don’t know which banks are going to go next. And banks we never thought would go, have gone, and we don’t know how the government’s going to handle them..."

Data Courtesy: CNBC

Will Cox Spread SEC Order To ALL ?

In testimony delivered today during a U.S. Financial Services Committee hearing in Washington, Securities and Exchange Commission Chairman Christopher Cox stated that he is interested in SPREADING recently imposed Short-Selling restrictions from a small group of 19 financial stocks to the ENTIRE stock market.

news/newsfeeds/articles/djf500/200807241703DOWJONESDJONLINE000879_FORTUNE

Quoted from the Above Link:
* The SEC issued an emergency order last week, which took effect Monday (7/21/08), to tighten requirements for short sales focused on 19 U.S. financial companies including Fannie Mae (FNM) and Freddie Mac (FRE), the federally sponsored housing-finance giants. In addition to the two Government Sponsored Enterprises (GSE's), the order included 17 Federal Reserve primary dealers in U.S. Treasury debt. FYI, for a list of The U.S. Fed's Primary Dealers please refer to my 3/16/08 post labelled 'REF - U.S. Fed Primary Dealers (Discount Rate)'.

* SEC Chairman Cox said the 19 stocks were originally targeted because they were institutions able to borrow from the Federal Reserve. But he said the SEC aims to extend "operational protections" marketwide.

* Short sellers sell borrowed shares which they hope to replace later at lower prices, profiting from stock price declines...The SEC has put restrictions in place in recent years to curb illegal "naked" short sales, in which stocks are NOT borrowed before short sales. That effort was extended with the emergency order which calls for borrowing or arranging to borrow shares in advance of short sales in the 19 targeted stocks.

* Cox told reporters after the hearing that the SEC staff also is discussing changes that would require disclosure of significant short positions, similar to requirements to divulge big long position in stocks.

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RTOB - When there's only TWO SIDES to the Stock Market (Up or Down...Long or Short...Bull or Bear...Black or Red), there's No way one can assert that increased SEC regulation imposed on one side will NOT benefit the other...Skipping the always lively ethics debate (Is the SEC overstepping its 'free market' bounds ?), I'd rather focus on the decision and what it represents. Besides being a psychological victory for those individuals 'long' stocks (and possibly a catalyst leading to another short-squeeze induced stock market rally), this event also marks the Beginning of a New ERA...An ERA that is governed by a much more active and vigilant Securities and Exchange Commission. Maybe I'm being too optimistic, but it seems like the 'New' SEC is More Willing THAN EVER to SWIFTLY Re-examine and Address stock market MANIPULATION. Regardless of your SIDE, score one for the Longer term Sustainability of the GAME.

Data Courtesy: CNN Money
Full Disclosure: I own shares of GS.