September 14, 2008
Mr. Brigagliano and Mr. Sirri
What is wrong with this story? Isnít this an admission that short sellers can target companies and engage in a trading strategy that can hurt the issuer, investors, and bring inefficient price discovery to these markets? How can the Fed and the Treasury be thinking this way while the SEC is about to propose a very limited reform regarding this issue?
If the SECís Division of Trading and Markets puts forward to the public any proposal other than the rule presented in the emergency order than they would be doing so against the very wishes and beliefs of the US Banks, the US Treasury, the US Fed, the American Bankers Association, hundreds of public issuers, and millions of public investors. So why would the SECís division of Trading and Markets take up such action after more than 4 years of failed rule making in this arena?
The only rationale explanation as to why the SEC would act in such a negligent manner can only be that they have engaged in a grave conflict of interest with those who are responsible for the methods of fraud each of the above now recognizes. Former Commissioner Annette Nazareth addressed how the grandfather clause was a temporary measure set forth to protect those who had already abused the system and now we are to come to understand that the predatory trading in these markets will remain forever, or at least until a new regime of folk are hired at the SEC who will take this issue more seriously.
Case in point.
Last week CNBC interviewed one of the largest short sellers in this nation, Jim Chanos. In that interview it was identified that Mr. Chanos was provided private access to key individuals within the agency, including Chairman Cox, and that by the time he left the SEC now understood his concerns and this issue. The WSJ story released Friday addressing a lesser rule change supports the commentary of Chanos.
How the SEC can make key decisions based on the private testimony of the single individual that would benefit from lesser rules is concerning to all the victims that have in the past and will continue to suffer from the abuses. It will be interesting to see how CNBC, long supporters of the short seller, will react now that the SEC has issued a Wells Notice to GE regarding accounting violations and GE has come into the sites of these predatory traders.
The banks identified in this story do not fear short sellers; they fear the tactics of short sales that deny efficient price discovery. The same denial of price discovery that took place last week when United Airlines and the entire airline sector watched 20% of their market value vaporized in a split second once predators took advantage of a single bogus rumor reported on the Bloomberg wire. United, the target of the bogus story was not the only company impacted, every airline market was impacted the same way every bank, whether financially stable or financially weak, will be impacted. Fundamentals and price discovery never part of the overall picture.
I can only wonder, when does it come time that the SEC listen to the voices of the majority of both educated and uneducated and put policies in place that protect the 97 million investors and some 14,000 public issuers that make up the US capital markets? When will the SEC stop placing the needs of predators above the rights of the majority of the investing public? Forcing short sellers to borrow first what they plan on selling is only a logical next step. That includes the short seller that wishes to rapid trade a market with the intent on covering within the normal settlement period. After all rapid traders are not investors, they are market movers.
Copyrighted material redacted. Author reference the following article: Louise Story, Banks Fear Next Move by Shorts, Sept. 15, 2008