Tuesday, March 10, 2009

They are geeeeniuses!

From The Washington Post.

"Rep. Barney Frank (D-Mass.), the head of the House Financial Services committee, said that the SEC should restore the so-called "uptick" rule within a month, Reuters is reporting."

Breaking now! Also says that barn door should be closed after barn burns down.

You can read about the uptick rule here. Which basically says, you can't short a declining stock. Personally I would have thought that when the government bought stakes in all the banks - they would have instituted the uptick rule. Ya know. To protect their investment. But, what do I know. When the market sees only fear, not having the uptick rule is basically a company killer. (Waves hand like Vanna White) Like the banks.

I know - I've proven to be incredibly naive in this recession.

Just as an aside - I've asked many, many people why the government wasn't instituting the uptick rule. Not one person has been able to answer me. If anyone knows - I'd love to be filled in. Although I'm immediately suspicious because Barney Frank and Chris Dodd are proposing it.


  1. The biggest arguments for not bringing the uptick rule back have to do w/ 1.) it's not really effective because traders have figured out how to game it already and 2.) by not having the uptick rule in place you increase liquidity which should save investors money in the long run.

    Unfortunately, bear raids will continue with or without the uptick, but that doesn't mean that it shouldn't be reinstated. It was originally created in response to the great depression after short sellers were blamed for causing the crash to begin with. In retrospect, it's a little bit eerie to see another crash begin right after removing the restriction.

    The bigger issue in my mind is the still legal ability for a financial firm to take out the equivalency of a life insurance policy on a company, even though they don't own them. This gives people an incentive to handsomely profit from destroying value while the underlying companies get nothing, but a volatile stock price and plenty of headaches.

  2. You know - when I was young, my family for some reason would use life insurance policies for basically a retirement plan. Since we had poor genetic history, and hence many died really young and never lived to retirement.

    This was how poor people tried to leave something to the next generation. For some reason my family would even take out life insurance policies on babies. Myself included. It sounds like much more malice than it was. Since they could never afford to pay for the policies all the way till someone died. But, we always knew that you didn't take out a policy too soon. As not to attract attention. And the thinking - not get paid.

    Now that I write it - it sounds much more bizarre than it was. But it's true. That was the thinking in my parent and grandparent(s's purposefully left out) generation I guess.

    As I remember it, you could take a policy on basically anyone. As long as you paid the premiums. I always thought it bizarre. Perhaps the insurers never did. As they got paid for a certain amount of time until my family couldn't afford to pay anymore. And they never had to pay out.

    That is your old time-y story for the day. But I agree. It only sets up for malfeasance.

  3. If you're curious, here's one guy who doesn't think the uptick makes much difference (about the bottom third is about the uptick).

    And sane people shouldn't be reading the HuffPo!

  4. I don't read huffpo - it was the simplest explanation at the time. As most of my viewers probably don't give a rats ass about stocks.

    I've also read most of the arguments against reinstating it. If it doesn't make any difference - no harm no foul. Right? It does seem odd to me that for the 20 months it's been gone - the market has gone down. Except for the brief blipp when they banned short sales on banks all together (which I'm against) in Sept, then in Nov. the market starting going down again when the ban was lifted.

    Surely the market would have still gone down, but the environment makes it a force multiplier.

    Additionally, by not having the uptick rule in place - this lets roving gangs of shorters hammer a stock into oblivion and forces companies into defending their stock and finding other ways to raise capitol.

    Sure maybe they had a crappy company and they were seeping blood. But the raids give a company no time to turn things around. Sapping resources that might otherwise have been spent repairing a company.

  5. The reference about the barn door is incorrect. You don't shut the barn door after the cow is already out.
    Not burning but out. Rabbits get out if you leave the cage open maybe you can understand.