March 5, 2009
Dear Ms. Schapiro,
The country and world needs your help. You have some of the best tools to fix the world economic woes. At this time, you can have more impact than the Treasury and the Federal Reserve. There are 3 items you can do:
1) Adjust FASB calculations on Mark to Market for illiquid assets.
2) Re instate the Uptick Rule.
3) Eliminate ETF's that double and triple short the market.
1) FASB and Mark to Market
The calculation created for valuing illiquid assets which came from the Sarbanes-Oxley Act of 2002 has helped to create the worst recession and may be a depression. It has caused financial institutions to value assets at levels well below what many believe they should be.
(Example: I saw a CMO on a statement valued at $42. This security of approx. 7500 mortgages had approximately 3% problem loans including 30,60 90 delinquent, bankrupt and foreclosure. It had a 6% coupon and an average FICO score of 740.)
The banks have been forced to mark these types of assets well below believed values causing them to have to raise tremendous capital, creating fear in markets and closing down the credit markets. Banks can't give loans. If they do, they have to mark down the loan after giving it or they can't afford to use the capital. This has closed down the securitization markets . . . Stocks have suffered from a lack of confidence which have caused investors (America main street and foreign main street) to lose wealth which has caused them to cut back. This has snowballed.
I have a friend who doesn't want to pay his life insurance premium and wants to take out the cash value out because the concern that major insurance companies may be the next problem. And they probably will if the current calculations continue. He sees the stock at $5 a share.
We are creating our own problems through accounting.
USE A DIFFERENT FORMULA, Congress has given you the ability to make changes. Can't we create a valuation formula that uses some type of cash flow with a discount? Should the above security based on cash flow/ default/ risk be valued at closer to $75-85 with only 3% in problem loans Those who are lazy or want to buy these "toxic assets" say it is hard to value. If we can put a camera on a mobile device to take pictures on Mars, then we can create a better formula to value illiquid assets.
Banks and Insurance companies will be able to mark assets higher to a more reasonable level. These companies will no longer have to raise additional capital from the government which will stop the dilution, negative press, raise confidence in the economy and allow these companies to get back to their business of extending credit. The SEC becomes the hero.
2. Reinstate the Uptick Rule
I don't have the exact statistics. So many people have said that the violent negative volatility has increased since the Uptick Rule was taken away. I heard one study that showed the number stocks that have suffered a 20% decline with no news has significantly increased. We don't need to give the short players additional tools. This rule was in place for so many years and worked well.
Maybe this lessens the last 30 minutes of trading day slides that have plagued the markets and have produced as much as 200 point declines. This lessens some of the volatility and allows investors to feel more comfortable to stick their toe back in the water. Currently the longer term investor is fearful that trader has all the advantage.
3. Eliminate ETF's that double and triple short or go long the market
I am not positive but I believe these products are against the Securities Act of 1933 or Securities Exchange Act of 1934 pertaining to margin. You can buy a triple short etf on margin and be 6 times short the market. I understand the idea and a product that shorts the market as a hedge but there shouldn't be a product that leverages the short side. This tool in the hands of bad people can be used as a tool to push the market lower. This hurts individual investors. I also believe you should not be able to double or triple long the market.
Lessen some of the violent volatility that is causing main street investors to avoid the markets. This can help to instill some confidence that the markets are not only for professional traders.
PLEASE HELP US SAVE THIS ECONOMY AND THE WORLD ECONOMY BEFORE ANY MORE DAMAGE IS MADE.