Subject: File No. S7-20-08

July 20, 2008


RE: S7-20-08 Emergency order concerning short selling

Naked shorting is no different than stated income loans (liar loans) in the mortgage industry or the recent abuse of auto leasing.

Originally stated income loans were created so that professionals and high credit individuals who did not have a regular source of income and whose revenues varied drastically would certify as stated income their level of earnings. However this exception lead to the biggest mortgage meltdown and the recession that U.S. is experiencing currently due to the abuse of the exception to the rule, where anyone with a heart beat could state a certain income and would end up getting a loan.

Similar situation happened with auto leasing. Auto leasing was supposed to be a corporate luxury for tax purposes. However as credit issuance became lax, auto makers started to compete for market share and only had one goal, to move the highest volume of cars possible. Many, who did not have the financial strength to put down a down payment, ended up leasing which required very little to no money down. As long as they could sign on the dotted line, customers were able to move a unit off the dealer lots. Now dealers and banks are stuck with all these used cars flooding the markets with upside down residuals. Once again the small market of leasing was given an exception to apply to individuals rather than being strictly a corporate product and next thing you know, the exception became the norm and was abused beyond repair.

We are experiencing the same abuses of the exception allowed to brokers and market makers with relation to naked shorting and selling something they dont have. In the late 90s and early 2000 it became necessary to allow some naked shorting to prevent the runaway bubble of the dot com. This exception became the norm where brokers and market makers made it a norm to continuously, sell, take a position against clients and to prevent any run ups, simply because they could do so.

Exceptions always cause abuse and once it gets out of hand as it has currently with lending and naked shorting, going cold turkey is the only means to cure the problem. One just cant be a little pregnant. Naked shorting must be abolished in order for the system to fix itself. Retail and individual investors have taken great losses in the past decade to abusive market makers and brokers. Now is the time for these entities to clean up their act and close the loopholes. The addict needs to get off drugs. We cant treat the addiction by allowing the patient to switch to other forms of addictive products. It will only get worse.