March 6, 2009
Cliff as I've said many times now, and have been published on Minyanville.com -- we will not bottom until we see at least two of these rule changes implemented. Most of which were changed or eliminated during calendar 2007.
1. Uptick rule, taking this rule out of the market has been simply devastating and I'm sure will be researched many universities for years to come on how much damaged this has caused.
2. Mark to market accounting (FAS 157) -- probably more important than uptick rule at this point but these rules work together to greatly exacerbate the market freefall.
3. Position limits in futures. This is more complex but essentially the relaxation of these rules has helped fuel the inverse Etf's as well as was a primary reason for the Oil bubble last year.
4. Trading curbs on the exchanges. Again not sure why these were ever changes as these were extremely important emergency circuit breakers.
5. CDS market. Credit default swaps were started as essentially insurance contracts to protect owners with massive exposure to credit risk and or counter party risk. In insurance law you needs to prove insurable interest for a contract to be valid. Essentially the credit default swap market is a huge insurance market that is not complying with insurance law. And what you have is great number of participants looking to collect life insurance on banks that they wish to see die. If this market had to follow the simple legal concept of insurable interest you would see an immense amount of pressure against the financial system immediately ease.
Again, this is all very frustrating to see our great financial system being destroyed by poor policy and key rules being eliminated during 2007.
William Isaac wrote a great piece talking about these and other factors just a week or so ago.
On Mar 6, 2009, wrote:
Today (3/6/09), the Dow opened up 161 points until exactly 9:45 (fifteen minutes) when sell programs took over our stock markets driving the Dow down 212 points until 11:00. How long is the SEC going to stand by and let predatory traders manipulate our stock markets for their profits to the detriment of our economy and Main Street investors Cliff Lindroth, San Diego, CA