March 26, 2009
SEC Chairwoman Mary Schapiro asked for public imput about the uptick rule which was
suspended in 2007. I wrote this memo about a month ago concerned about the combined use
or the mark to market requirement and shorting without an uptick plus shorting naked. This
combination, under unusal economic conditions, both of which were meant to be for good,
allowed money from all sources to raid our companies into the ground by a domino effect.
Feeding on fear and constant media coverage of gloom and doom, along with a presidential
election, a perfect storm developed. The VIX index became extremely volitile, rumors and
more fear caused runs on financial institutions causing media frenzy and financial distasters,
one after another. The hot money knew this and played the game as a domino effect took
place. As the equity value of stocks decline, fear grew, causing more fear which lead to
financial covenants to be violated requiring capital requirements to be infused more and more
to survive the massive loss of value. The accounting firms, themselves fearing, ala Arthur
Anderson being forced out business, lawsuits and bad publicity, started marking down asset
valuations dramatically. No future value was being given assets of any consequence. Then
Moodys, S&P and Fitch started downgrading bonds and preferreds over and over, further
impairing financial covenants, still going on now.
I was in the security business for forty years retired at the end of 2002, and have observed many unusal developments to bring the US financial system to where it is today, but the combination of the mkt to mkt and no uptick requirement and naked shorting, created toxic assets that were not toxic. The toxic medicine were these culprits that has made the financial health of our nation sick. In my opinion, to help restore our financial wellbeing, reinstate the uptick rule and recind or modify the mark to market rule. This would cause valuation of assets to improve, rating services would upgrade the formerly high ratings, confindence would increase and the markets to stablize.
Copies of my memo were sent to four Indiana congressmen, Mr. Bernanke and others. Thank you for your concern and immediate attention to these extremely important topics.
Bill Shinn