The SEC said this morning they want comments on the five proposed rules aimed to curb short selling. Here’s one, from hedge fund harem head (and Coalition of Private Investment Companies Chairman) Jim Chanos.
Short version: Suck it.
Long version: Suuuuck it.
Longer version:
“Rebuilding investor confidence should be the primary objective of any new regulatory effort and it is not clear that today’s proposals will meet that simple goal. Skeptics, independent research and critical analysis must continue to play a vibrant role for our markets to grow sustainably and with integrity. Short selling is integral to improving the efficiency of markets and enhancing market quality through narrower spreads, deeper liquidity, less volatility, and greater price discovery. In recent years, short-sellers have publicly warned the marketplace about the dangers at AIG, Lehman Brothers, and Enron, as well as sounding the alarm over the credit ratings agencies, non-bank subprime lenders, and credit insurers. Proposals to inhibit short-selling have the effect of limiting this vital market-based antidote to corporate fraud and speculative bubbles, and must be carefully weighed against the clear harm that comes from ill-conceived government intervention in basic market functions.”
I can only imagine Maxine Waters trying to make heads or tails of that statement. “Where does he address woman and minority-owned short selling CEO’s? Who is your CEO Mr. Chanos? Who is his connections??!?!”
Why no mention of naked shorting? In my mind a much bigger issue.
One line commonly put out by hedge funds is the uptick will have no effect because stocks are now traded in cents.
If that is the case, why are they crying about the rule that was OK from 1938 to 2007 being put back into place?
Cramer told us the market would go up once the uptick rule is reinstated.
And he knows it!
Its easy to criticize Maxine, but remember she’s just pushing hard for what’s best for her constituents. She’s only one voice, so its more annoying than effective, but that’s what Congress is all about. I’m sure her peeps are puking every time Ryan from MN talks about cutting taxes. (I’m still waiting for him to speak in concrete rather than righteous terms about cutting spending).
>> Why no mention of naked shorting?
Is this some new regulation that I have to be naked when selling short?
anal_fist is a wise man.
6 = Emily Leteller
In other words, the only way I know how to make money is by shorting so please don’t take away my meal ticket!!!!!!
@2 naked shorting can be remedied very simply, by imposing heavy fines on fails to deliver. not sure why they dont just go with that
9 from the neck up you ahh retahhded
Please….who knows more about what’s best for the markets, Jim Chanos or Barney Frank?
Clearly Barney knows much more about the market.
@9- seriously? buy a clue.
@11: This is what I think of you (and your momma): http://www.youtube.com/watch?v=V-A3_4oLiqM
Yeah Jim…BRING BACK OTC BULLETS!
@9-yes, he’s looking out for self, but what he says is quite sensible. It’s naked shorts that can be problematic but Maxine Waters doesn’t know the difference.
@9- so fucking what if he’s looking out for himself? he’s also completely right.
“Its easy to criticize Maxine”
well, she should try to make it harder…let’s just be clear, MW (from the left coast, not to be confused with the MW from the east coast married to the wrestler) is lookin’ out for #1 (ie. herself). time to wake up people.
Maybe I should also aggressively steer TARP funds to a bank in which I hold massive equity and a board seat.
Who is YOUR CEO Maxine?
Hey Mr. Chanos…
Your “Rebuilding investor confidence…” statement is nonsense.
TGFD wonders how in hell the financial markets ever functioned or even survived for nearly seven decades while an uptick rule was in place? Tell us, Chanos.
Also, as long as clowns like you have “a seat at the table”, the only thing “on the menu” will be Main Street’s retail investors. And that will certainly rebuild investor confidence. Won’t it? Tell us how, Chanos.
TGFD knows that a lot of DB posters think Chanos is just the cat’s ass, but when someone makes a ludicrous argument like his, I have difficulty understanding why you all admire him so.
Oh…He “makes a lot more money in a week than TGFD will ever see in a lifetime.” Now I see. Now TGFD understands.
The Guy from Delaware
@18-and Chanos is looking out for the public good? Give me a break.
I’m pro uptick.
@20 you probably need some psychiatric assistance
I can’t wait for them to get rid of those unamerican PUT options as well…perhaps we can force all TARP holders to be long only common equity shops that must hold all shares for at least one year….
@ TGFD
Bear with me as I’m trying to oversimplify and likely fighting an un-winable fight, but here goes:
If retail investors want to play in the equity markets (and whether they trust “advice,” to do so, regardless of the source) is their prerogative. They – and their lazy institutional brethren – should then not be surprised when they get slaughtered by better-armed opponents.
Of course the big boys have a louder voice, but thems the breaks. Take it or leave it.
To Chanos’ points: there is no natural law that prices must always go up. Quite the contrary, the ability to “bet” (don’t read too far into the use of that word) that prices will go down is an important tool for functioning markets. If you do not understand this, I, for one, lack the inclination or time to explain it. Sorry, I tried.
24 You conveniently forget in your sarcasm that the options market is totally transparent – open interest is known at all times, impossible to do naked shorting (by proxy, that is with puts) on the sly.
@21 – “and Chanos is looking out for the public good?”
nope, he and MW are on the same page with regard to that. he’s out for #1 too. but his #1 is different than her #1. just sayin’…it’s 2009, time to call a spade a spade.
I am an Ixodoidea, what is an Uptick?
Maybe if we put in a rule that only allowed buying long on a downtick we could avoid bubbles altogether.
The problem is that we have all of these speculators on main street who buy stocks hoping that they go up. This rampant speculation needs to be more heavily regulated.
TGFD loves cock.
The Guy from Delaware
Naked shorting has not been legal for sometime, it was just never enforced. I’m all for curbing naked shorting, I just don’t like the slippery slope we have been heading down with the gov’t telling me that someone in North Dakota would be happy with a 90K a year job so someone in NYC should be happy too. Shorting is necessary and healthy for any capitalist market. Add back the uptick, I’m fine with it, but don’t tell me that shorting is evil etc.
The Tick was an awesome cartoon.
I think there are actually decent arguments both for and against the uptick rule, but blindly arguing either side shows more ignorance than anything.
What about the rule that the NYSE stops trading amid massive price drops, is that also a ludicrous idea that further takes confidence out of the market?
@5 You just presented one of the better arguments I can think of against democracy as a form of government (my apologies in advance for questioning such a dogmatic conviction that democracy is good…it would be less impetuous of me to discuss the legitimacy of abortion among hardcore right-wing pro-lifers).
@TGFD, just because markets “functioned or even survived” while the uptick rule was in place isn’t a good argument that it should be reinstated. They could have functioned ~better~ without it, though it would be exceedingly difficult to measure something like that. And for what it’s worth, I’m not really a Chanos fan, though I respect him much more than a lot of other prominent Wall Street people.
@21- “and Chanos is looking out for the public good?”
I’m sorry, did you miss the part where Chanos is a private citizen with a private firm and Waters is an elected official?
@26 I’m not ultra-familiar with options markets, but if you write an in the money put, you’re effectively short. While this is not fraudulent or even deceptive (presumably you never represented that you were long the shares against which you’ve written the put), it could reasonable be described as “naked”…for economic purposes anyway.
That type of naked shorting is not bad per se, but it’s dangerous in that it has limited transparency in terms of how much credit one is extending to his option counterparty (whether it’s OTC or exchanged-traded with margin requirements).
@33 why are there curbs when the market goes down but not when it goes up? I mean if this is a regulation to prevent overreactions, shouldn’t it be like corn futures, where there are limits in either direction?
Anal_Yst@#25…
Thank you for your effort, but you neglected to address either of TGFD’s questions.
1) How did we survive for so long with uptick in place?
2) How will investor confidence be restored if we listen to Chanos?
My respect for you notwithstanding, TGFD must point out that you appear to be still stuck in the decade of all the financial innovation that has brought us so close to financial ruin:
No Uptick, No Glass-Stegall, unrestrained trading of naked derivatives (shorts & CDSs),Commodities Futures Mod Act of 2000, etc.
The Guy from Delaware
All you fucktards. Chanos’ comments aren’t necessarily pointed to the uptick rule. It’s the other assinine proposals to not allow shorting on stocks that are down a certain percentage or some other happy horseshit. I am totally against banning shorting but totally for bringing back the uptick. The uptick rule makes total logical sense to avoid bear raids etc….who gives a shit about the uptick rule if you’re not looking to drive down the stock price – which, contrary to public opinion, is not the only reason we short stocks.
Wow, I just realized I flipped some things around and screwed everything all the hell up. Please disregard my first paragraph above.
My point in the second paragraph is basically right. If you somehow go “naked short” through a derivative (an option or otherwise), it’s not really fraudulent or problematic as long as you never represent you have the underlying shares, but there is potential for problems with the assumption of credit counterparty risk if that isn’t sufficiently addressed.
-36
@36 If you write a put you have sold someone the right to put their shares to you and are essentially long
Guest@#34…
“while the uptick rule was in place isn’t a good argument that it should be reinstated. They (markets) could have functioned ~better~ without it, though it would be exceedingly difficult to measure something like that.”
I guess the markets have functioned “better” over the past few years without Uptick. Haven’t they? Seems pretty “measurable” to me.
TGFD is NOT against Short selling and CDS contracts. What I am seriously against is the naked versions of those particular derivatives.
The Guy from Delaware
p.s. Fool@#30. Not much to do while you sit in high-school detention class?
TGFD
Those that place blame for our recent mess on the recinding of the tick test need to answer the following questions:
1) How did markets in Europe avoid similar problems without a tick test for the past 80 years? (Looking for a perfect natural experiment, there it is)
2) Canada has a tick test on 18 of the 60 names in its benchmark index – and no such test in the remaining 42 – why haven’t they had very disimilar volatility and performance? (yet another great natural experiment)
3) How did the removal of the tick test cause unprecidented volatility in other asset classes and products?
The tick test is a logistical nightmare in a 42 trading venue environment that will cause increased trading friction for value adding quant funds but do little to prevent predatory practices.
I await your response….
#26 and #36…please see yourselves out.
-Guest #44
Why don’t we just legislate that the Dow be set at 15,000, and be done with it?
@43 hold on a tick. TGFD is taking it in the ass. I will be with you in a moment.
The Guy from Delaware
CourteousGuest@#43…
TGFD is not a Wall Street professional, nor am I a professional investor. I’m in Delaware, and I speak from a Main Street perspective.
TGFD has done some reading on the Wall Street subject, and I have spent a lot of time learning on DB as well.
When a calamity occurs, prudence requires one to examine any system-wide changes that took place since the time before there was a calamity.
TGFD’s research keeps revealing the following system-wide changes:
1) Repeal of the Glass-Stegall Act in 1999?
2) Commodities Futures Modernization Act of 2000.
3) Rapid expansion of CDS market (80% naked) from $1 Trillion in 2001 to $160? Trillion now.
4) Recinding the Uptick rule a year or so ago.
5) Rapid expansion of Fannie & Freddie loan guarantees early in this decade.
6) The FED keeping rates too low for too long after the DotCom bust.
7) Reckless packaging of CDOs by Wall Street IBs.
7) Irresponsible lending for mortgages.
8) Careless disregard by rating agencies of protocols for AAA ratings.
9) Lax and incompetent gov’t oversight of securities rules and regulations.
10) The birth of former Sen. Phil Graham way back when.
There are other things too that I just can’t think of rght now.
I’ve looked for a cause & effect relationship. All the things above are causes. What we have now is the effect.
Reverse, eliminate, or diminish many of the causes and the effect will follow.
Using more “Financial Innovation” ginned-up by the same crowd who gave us the innovations that brought us here in the first place, will not restore confidence.
If the U.S. economy is really 80% consumer-driven, and if consumers aren’t spending because they’re without work and because they’re scared and because they have no confidence in the system, what the hell will make things improve?
Lack of consuming –>lack of corporate profits –>lower stock prices.
Until Main Street sees something definite and constructive happening, and I mean a real f’n upheaval, I don’t see any improvement ahead.
The bullshit being shoveled by some HF guy named Chanos has no resonance on Main Street. In fact, people like him are hated by consumers.
The Guy from Delaware
Fool@#46 = Fool@#30.
You’re still sitting in detention.
The Guy from Delaware
“I’ve looked for a cause & effect relationship. All the things above are causes. What we have now is the effect.”
Correlation is not causation.
Guest@#49…
If you have anything germane to add, please do so.
CourteousGuest@#43…
One more thing. Now we have the FASB wanting to relax the Mk to Mkt rules. More tinkering around the edges. More innovation on top of already-failed innovations.
We’re heading no-f’n-where.
The Guy from Delaware
49 here – It is entirely germane to the discussion. Your argument in 47 centers around taking a correlation of events and recklessly ascribing a causal relationship.
I’d probably agree that some of those factors contributed to the situation, but “after this therefore because of this” thinking is logically flawed and is a very shaky foundation to build your case on.
Guest@#51/49…
I guess we’ll just have to disagree and see where this whole thing ends up.
TGFD is reminded of a favorite line of poetry by Anna Akhmatova from her “Poem Without a Hero”:
St. Petersburg in December, 1916.
“Christmas-tide was aglow with bonfires, the carriages tumbled off the bridges, and the whole funereal city was floating to an unknown destination.”
The Guy from Delaware
@ 45 . You think too small. Let’s just legislate that the Dow be at 30,000. Then we can get “rich”.
TGFD is tired of all this debating and needs some rest.
The Guy from Delaware
@54
TGFD needs to JO&C and than get some a2m
I wish discussions on short-selling included the real problem…Failed to Delivers (FTD)on Naked short selling (NSS). This is the abused aspect of short selling that is getting lost in the smoke screen. If one were to look back on the collapse of each of Bear, Lehman, Fannie, Freddie, Merrill, Citi, etc. The gross negligence of the SEC to enforce existing regulations regarding the settlement of short sales, demands a cleansing of the SEC. And new enforcement should look at hedge funds and market makers individually who abused the system by failing to deliver, a violation and crime if done intentionally to influence markets, which obviously happened. The DTCC “netting” of FTDs is complicit, and creates opportunity for “phantom” shares to white wash the crime. Prosecution of naked short sellers who failed to deliver should proceed under current regulations and criminal and civil guidelines. This would be anticeptic on an open wound.
B. Hussein Obama killin’ it!
TGFD, to answer your question, the reason I think Chanos is “the cat’s ass” and I admire him so is that he saw Enron coming and backed it up with a short position. This is also why I think he should not be lumped in with your typical Wall St. type, who it’s become so fashionable to hate at the moment.
I also admire successful shortsellers b/c it is a hard way to make money. In the long-term, markets appreciate somewhere between GDP and 8% per annum, so making money by betting against them takes a certain amount of stock-picking skill.
And now, I’m off to poke a hole in the Somali pirates’ dingy. Thank you, Cleveland.
i am offended by posts 3, 5 and 25, editors please remove them