Wow. It’s going to be hard to pull out of the mudpit left by the artillery barrage Markopolos just adjusted onto their heads, but the SEC is going to try, damnit.
Written statements (which are almost universally useless) are read into the record.
These consist of:
Four descriptions of what the SEC does. (None compelling)
- One description of the location of the SEC offices in Washington.
- One hint that the SEC party line is going to be that the “Investment Adviser” part of the
- Madoff organization was regulated separately and therefore any regular oversight was bound to miss the massive Ponzi scheme.
It seems to us like this organization is toast.
- Recess Ends -
Chairman: Ok, the SEC better not be laying down any limitations on what we can hear from SEC employees. There seems to be a misunderstand as to who created whom and who is responsible to whom under the Constitution.
Wow. Apparently of one of the SEC witnesses tried to claim he was exempt and the Chairman of the Committee is NOT amused. A call was placed to the grand poobah at the SEC and the witness was delivered, threatened subpoenas not issued. Just… wow.
They aren’t just incompetent with respect to investigating fraud, they are optics challenged.
What a fiasco.
Chairman: Apparently, if there is a snowstorm in Washington, the SEC cannot help. When are you going to be able to testify about this issue?
Witness: I don’t know.
EP here: I find when trying to liveblog the SEC testimony, I have two choices-
1. Quote verbatim.
2. Sit with a puzzled look on my face, and a squint trying to read the lips of the witness in addition to listening desperately trying to understand what language she is talking in and why I am having a hard time finding any meaningful signal in the midst of the sea of financial enforcement white-noise.
If we wanted any answer at all as to why Madoff skated past these people, that is it. It’s not that they are incompetent, it is that they exude a deadly cloud of negative competence that sucks any progress, organization, or intelligence right out from everything it touches- and it is apparently pressurized so when issued it expands to engulf the entire room.
Prediction #1: There are 4 more Madoffs out there, of lesser but still staggering size.
Prediction #2: The showing of the SEC is so poor here that the successor organization will be so doggedly aggressive that in ten years time we will be having a replay of the IRS abuse investigations that were all the rage in the ’80s.
Fireworks from the Committee: You just took the preamble of your mission statement and broke it up into five segments. With all your agents and resources, one guy with a few friends and some helpers. You couldn’t find your backside with two hands with the lights off. You have totally, totally failed in your mission. Don’t you get it? You forfeited your right to investigate by not doing it, and now you are trying to tell us that because other people are looking into it you can’t talk about it? Like hell you won’t. So what the hell went on? That’s a question.
Witness: Let me start with enforcement….
Committee: You keep say alleged, alleged, this guy confessed on national television you might have noticed. If anyone made the case better than Mr, Markopolos that you people are totally inept, it is you. Now, Mr. Vollmer, you are the one who tried to avoid testifying, are you citing Executive Branch privilege?
Vollmer (Deputy General Counsel): I would like to answer your question
Chairman: It’s a yes or no question.
Vollmer: No it is not.
Committee: It’s a yes or no question. Are you asserting privilege or not?
Vollmer: Well, sort of. In part.
Committee: So is that the position of the executive?
Vollmer: Hum, haw, hum haw.
Cox’s Cock
Even in the post-Sarbanes Oxley, post-Enron environment, accountants have continued to enjoy a solid reputation among the public, and among business decision makers. That’s a testament to your integrity and professional competence. Business executives — your clients — give you a favorability rating of 95%. At the SEC, where we’re focused on investor protection, we’re most impressed that investors give you a favorability rating of 97%. That’s as close to perfect as you’re likely to get in this life. None of this means that anyone in this room can afford to be complacent. You have a reputation, and a future, to protect. Together, we’ve all got to remain vigilant.
The role of the accounting profession, at its core, is parallel to that of the SEC. We both have the goal of ensuring full and accurate financial information is reported by companies. And in fact, given that the AICPA’s history dates back even further than the SEC’s, it was left for accountants to handle the Panic of 1884 on their own when this market crash hit the country.
Cox Remarks Before the AICPA National Conference on Current SEC and PCAOB Developments [SEC.gov]
This kind of vague sort of quote is really maddening. Specifically, Bloomberg reports:
U.S. regulators are likely to extend a ban on short-sales of financial stocks and is considering new protections for all publicly traded companies, NYSE Euronext Chief Executive Officer Duncan Niederauer said. (Emphasis ours).
What might those look like?
The SEC is considering rules that would bar traders from shorting stocks if they drop more than a certain percent, Niederauer said. Other proposals include halting trading in stocks that drop more than a certain threshold, or reviving the so-called uptick rule, which allowed short sales only if a preceding trade boosted a company’s stock price, he said.
Next: Expensive and beautiful silk panty garments – for everyone! (Why not? It’s just as ineffective and does less damage).
SEC May Extend Short-Selling Ban on Financial Stocks [Bloomberg]
The SEC continued its quest to eliminate short-selling entirely from U.S. markets by investigating whether traders actually spread rumors. I also heard that the FBI might be checking into the accusation that teenagers are having sex in cars or even in their parents’ bedrooms while adults are elsewhere. Like the parents of those kids, snooping through email and MySpace comments is the most effective discovery device to uncover these nefarious acts. No word yet on how long hedge funds will be grounded, or if they can go to prom.
According to a Wall Street Journal article today:
The [disclosure] order is akin to a subpoena and requires information to be handed over with a sworn statement attesting to its accuracy. It seeks a wide range of trading data and email communications over a period of three weeks involving American International Group Inc., Goldman Sachs Group Inc., Lehman Brothers Holdings Inc., Morgan Stanley, Washington Mutual Inc. and Merrill Lynch & Co.,
And, maybe it is just me, but is anyone else getting tired of the obligatory short sale description paragraph that some cabal of financial press editors seems to have mandated for any article on this topic? Can’t we just put “Obligatory short-sale description is hereby incorporated by reference” in the footnotes or something?
In a regular short sale, a trader sells borrowed stock in hopes that it drops and can be bought at a lower price.
If you don’t know that yet, the Journal should be locking you on the other side of their paywall.
SEC Presses Hedge Funds [Wall Street Journal]
S&P 500 Index v. UltraShort S&P500 ProShares ETF. Ouch. Thanks Cox.
Chart after the jump.
Well, we all knew they blew it, the only question was how long it was going to take them to admit it. And given that the rule was only scheduled to last ten days at first, we might have endured the entire thing without so much as a “woops.”
Of course, I mean the SEC’s reversal on several provisions of their short selling restrictions. The Wall Street Journal reports:
WASHINGTON — The Securities and Exchange Commission said shortly after midnight Monday that it would revise rules to curb short selling that it had issued just three days before.
The SEC’s latest change of direction on short selling caught some market participants off guard and prompted criticism that the agency has miscalculated the impact of its rulemaking.
The SEC, in a release issued at 12:26 a.m. EST Monday, reversed a position it had taken Friday when it said that market makers couldn’t short financial stocks after Friday. The new rules as of Monday: Those engaged in bona fide market making and hedging activity, including in derivative contracts, could continue to short.
I’m utterly fascinated to see what “bona fide market making and hedging activity” is.
This, of course, is the problem with hasty rules squeezed off to quiet the rambunctious third graders quickly. You impose restrictions based on no data at all that they might help the market, but that have a psychological “we’re in control” feel to them. Action is taken. Confidence is restored. That is, unless the rule is so moronic that it causes more problems than it solves. So then what do you do? Backtrack halfway and open some more loopholes? Now you look like the bumbling idiots we always knew you were. The problem is, now everyone knows, and everyone feels more than a little bit molested.
SEC Quickly Revises Short-Selling Rules [Wall Street Journal]
Short interest as a percentage of float with increase/decrease over last trading reporting day (as of September 19th):
MS: 4.10% (-6.67%)
GS: 3.40% (-9.46%)
BAC: 2.60% (+4.16%)
C: 2.90% (+0.48%)
FITB: 9.73% (+27.90%)
WM: 26.10% (+12.93%)
Do we really want to be protecting Fifth Third Bank and Washington Mutual from the sinister shorts? After all, a 10% short interest isn’t doing that much to the share price in the first place. And if 30% of the market thinks you are doomed, well, maybe you should be doomed.
- Use the Bloomberg command
NH BLG_DEALBREAKER <GO>
to access Dealbreaker
