Time to Stop Talking and Start Fixing

The time for talk is done – now it is the time for action.

No question that the economy is broken.  Plenty of people have said plenty of things about that.  Enough!

What actions?  I’m sure that there are a great many of things that would be useful.  But earlier today, I saw a wonderful list posted by idannyb on the excellent Apple Sanity stock message board (free, but application and acceptance required).  That list deserves wider dissemination – in fact, I encourage everyone that reads this post to further disseminate it by sharing it with as many people as you can.

Here are several simple things that can have immediate positive impact on our economy generally and the financial sector specifically:

God forbid that I quote Lenin… but here goes anyway; “A Capitalist will sell you the rope to hang him with.”

While I abhor Lenin’s ideology, in this quote he has a point. Through sheer greed and stupidity our financial institutions, in full partnership with complicit regulators and “asleep at the wheel” legislators, have successfully lobbied to “hang ourselves” by :

  • Loosening up rules that reigned in their ability to leverage up their balance sheets with what we now refer to as “toxic assets.” See > SEC approved
  • Repealing the uptick rule appropriately instituted to check unbridled short selling.
  • Keeping (to this very day) exemptions and loopholes that allow for abusive and illegal naked short selling to continue!
  • Keeping credit default swaps from being regulated and traded on an exchange to foster transparency.
  • Allowing hedge funds to go unregulated. So the keystone cops SEC had “no controlling legal authority” to audit Madoff until “fraud” was uncovered (he confessed) … Brilliant!

The bullet list above could run ten pages and probably should; however, the list above can and must be attacked now. How? See tactical actions below! In order to prevent the collapse of our equity markets (pensions, 401Ks, and the average joe investor), here is what needs to be done with the urgency afforded to impending 911/Pearl Harbor event?

  1. Reinstate the uptick rule … not after new studies and more navel contemplation …NOW!
  2. Institute a “pre-borrow” requirement before a short sale can be executed! The only way to curb criminal short selling abuses is to mandate a confirmed and documented pre-borrow – tracking actual cusip numbers on shares – before a short sale can be executed. No exemptions period. If this makes life rough on options market makers … tough!  They will adjust! As will the options markets. The SEC will tout their new Rule 10b-21. Don’t fall for the trap. It is riddled with exemptions and even includes a clause that voids all violations if the “offense” doesn’t result in a “fail to deliver” (FTD) upon settlement.
  3. Immediately mandate that credit default swaps (CDS) be traded on an exchange.
  4. Classify CDS as insurance contracts. Although CDS walk like a duck and squawk like a duck, the International Swaps and Derivatives Association (ISDA) insists that CDS are not “insurance contracts.” Because if CDS were insurance, they would have to:

    · Be regulated by state insurance departments

    · Insurers would need to hold reserves to back up their obligation to pay on default

    · Buyers of CDS would have to have some “insurable interest” in the transaction

    · Large speculators and hedge funds could not be using CDS as a synthetic short

  5. Require that hedge funds register as investment advisors, undergo regular audits and provide full books and records transparency. Yes, I know the SEC lost a case in court attempting to regulate hedge funds. Hello Congress … pass a friggin’ law and make it so.

This list is not rocket science.  It does not need to have an exhaustive study to determine what else needs to be done.

These items can be done right now.

They should be done right now.

They must be done right now.

The time for talk is done – now it is the time for action.

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