September 10, 2008
I am very appreciative of the important role the SEC plays particularly in this very difficult market environment. In July, I sent an email requesting that SEC take two important steps to help stabilize trading in financial stocks - 1) re-implement the "Up-Tick rule" and 2) enforce the Naked Short Selling rules.
The SEC then put in place a temporary order to enforce the Naked Short Selling rule on July 15th.
The response in the market place was dramatic. Short interest declined sharply on the NYSE with many key financial stocks experiencing material declines in outstanding short interest.
Then the emergency order lapsed on August 12th and short interest began climbing immediately.
Fannie Freddie are the most recent victims of bear raids, perhaps they would have gone under anyway but the attack from short sellers clearly played a role.
We are now seeing runs against Lehman, Washington Mutual and other banks and brokers. I believe that short selling DOES play an important role in the markets. But Naked Short Selling should not be allowed and the rules must be enforced. This is a critical time in which capital must be raised to stabilize the financial system, a task made impossible by attacks from short sellers who have no intention of actually borrowing the stock, and de facto create more stock by selling short on a naked basis.
The one of the real victims of this crime are investors such as NCMIC Insurance which, in good faith, are investing billions into the financial system only to see short sellers increase the cost of capital so high that either dilution is so severe as to eliminate our prospects for recovery OR we see our investments get wiped out to avoid the appearance of "moral hazard".
Please, we need the SEC's help