SEC Moves Aggressively On Short Sellers {Housing Tracker]

Quote Of The Day 

“Lehman's best course of action would be a ‘going private’ transaction, since it is the public equity markets that are the threat to the company's survival. Without a public stock, there would be no shorting, thus no motivation for rumor-mongering, thus no source to spook the counterparties and creditors.'' - Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone. (Bloomberg, July 14^th)

Subprime Regulation

SEC Moves to Curb Short-Selling.  “The SEC… acting on a widespread concern that negative bets against bank and brokerage stocks might be exacerbating the financial sector's woes… said it would immediately move to curb improper short selling in the stocks of struggling mortgage giants Fannie Mae and Freddie Mac, as well as those of 17 financial firms, including Goldman Sachs Group (GS), Lehman Brothers Holdings (LEH), Morgan Stanley (MS) and Merrill Lynch (MER). The plan, expected to go into effect on Monday, will expire in 30 days. But the SEC will also begin considering whether to extend the new requirements to all stocks traded in the U.S.”  (Wall St. Journal, July 16^th)

SEC Subpoenas Wall Street in Hunt for `Manipulators'. “The U.S. SEC subpoenaed Wall Street's biggest firms and hedge-fund advisers in a widening effort to crack down on suspected manipulation of Lehman Brothers Holdings Inc. and Bear Stearns Cos. shares, said three people with knowledge of the matter. The SEC's enforcement unit demanded information from investment banks including Goldman Sachs Group Inc., Deutsche Bank AG (DB) and Merrill Lynch & Co., according to two of the people, who declined to be identified because the inquiries aren't public. The regulator is seeking trading records and e-mails, one of them said.”  (Bloomberg, July 16^th)

Paulson Should Consider Receivership For Fannie, Freddie: WSJ.  “The U.S. Treasury Secretary could make greater progress toward a safer financial system by putting Fannie Mae (FNM) and Freddie Mac (FRE) into federal receivership… The country's two biggest mortgage firms finance about $5 trillion in U.S. home loans, or about half of the total, so are too big to fail… Paulson could appoint a prominent financial figure with bipartisan credibility as a receivership czar, with a mission to protect taxpayer interests. A czar would have the power to replace the companies' management and directors, as well as give priority to taxpayers above the current private shareholders if the government does inject capital.”  (Reuters, July 15^th)

 

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Comments

[Malkiel]

Jim Cramer has been openly confessing to his nationwide tv audience for years that he and other Wall Street Players manipulated stock prices through shorting, practically begged the SEC to come question him so he could unburden himself, but apparently nobody at SEC was ever bothered by this broad hint delivered to the whole nation, like a financial Ruby shooting Oswald on live tv. One can only suppose Bushes' SEC guys weren't bothered by the cheating until the heat came on...

[Whidbey.]

The hunt for manipulators is a diversion to avoid looking at the racketeers who set up the financial trap. They should look in Congress where many corrupt members have been in bed with the GSE management for years, Congress got donations, trips etc, and the GSE got programs from Congress to underwrite more and different loans, not mention Fortune 500 salaries. The upshot? We have a mutually corrupt agency and Congress. Franklin Raines from Seattle settled his corruption charges and has walked away leaving the US citizen holding the bag. And Congress? They are planning ACT II when they give Ben the bucks to fix the GSE capital and "run new programs". Forget the stock shorts and look at the moral shorts in Congress and at the Agencies. PS; Naked short selling was always illegal, and nondelivery of shares was illegal, and manipulation per se is not illegal unless coupled with an intent to obstruct the Federal statutes. I have been practicing 40 years and that is damned near impossible. So the SEC search is just a hoax to divert the sheriff.

[JimHawthorne]

Of course the REAL criminals are the Wall Street Bankers themselves!

Can we ever seriously call this a FREE MARKET again?

[carey_jim]

Free market bashing has been going on from the beginning of capitalism. Marxists have called capitalists "moneybags" and other derogatory things from 1850 to the present.

Most people answer by saying that socialism is simply rule by intellectuals who form bureaucracies from which to wield their power. That's why the average person thinks an intellectual is, by definition, a "liberal" or, when they take power, a communist.

When businessmen are in power, the rules of the game are economics and finance and the referees are various government agencies. Intellectuals are reduced to being referees.

When socialists are in control bureaucrats like the Harvard professors take control and their rules are similar to the rules of any other bureaucracy: work hard and move up in the bureaucracy.

But the vices of socialism seem to be the same as the vices of capitalism but reversed:

As John Kenneth Galbraith joked: Capitalism is the exploitation of man by man. Socialism is the reverse.

Which is it going to be?