Video- CNBC.com Thats right folks, time for the SEC to step up and take their part of the blame in the crisis. Bear Sterns equity investors should be filing lawsuits left and right. The again, so should all the short sellers who were caught in the massive rally when the SEC decided to manipulate the market and halt all short selling on 799 financial stocks.
It's like the SEC was asleep at the wheel. "So now that we screwed up by introcucing mark to market accounting rules and letting the up-tick rule expire, let's just stop shorting financial stocks alltogether"... brilliant move. "Then after that, we'll just stop people from selling Financial stocks at all. All you can do is BUY".
Totally agree with you, the mark to market accounting rules have their place in perpetuating this problem and removing the uptick rule was one of the most bone headed rule changes I have ever seen.
A rule change by the SEC in 2004 allowed financial service firms with a market capitalization of $1 billion or more to significantly increase their leverage. The five firms which qualified were: Merrill Lynch, Goldman Sachs, Lehman Brothers, Morgan Stanley and Bear Stearns. The attached article describes the evolution of this rule change: Ex-SEC Official Blames Agency for Blow-Up of Broker-Dealers - September 18, 2008 - The New York Sun The details of the rule change, titled the Consolidated Supervised Entities program, can be found on the SEC website, which is attached for your review: SEC Holding Company Supervision With Respect to Capital Standards and Liquidity Planning Firms which were previously capped at a 12-to-1 leverage ratio were within a few years carrying a 40-to-1 leverage. Three of these firm(Bear, Lehman and Merrill) are no longer independent entities, and two (Goldman, Morgan) have chosen to become commercial banks, where their leverage ratios will be substantially reduced and highly regulated. The world of investment banks has changed forever. The consequences of this massive unwinding of leverage are now being felt.
This is not the first time overleveraging has caused financial disaster. It has happened in other countries too . Its shameful that the SEC has not learned the lessons .It smacks of arrogance and greed Heads should roll but I know they wont.Most of the culprits have disappeared into the woodwork with their millions of dollars profits and their golden parachutes.
