At Last, Steve Forbes and I agree: Get rid of onerous mark to market accounting rules, institute the uptick rule for short sellers and enforce rules for naked short selling.
There aren't many topics relating to policy on which Steve Forbes and I agree. But his editorial in The Wall Street Journal today is spot on. There are three onerous rules that were implemented under President George W. Bush that are causing great harm to the banking businesses, accelerating the liquidity crisis and damaging stocks of companies large and small. The first of these is the mark to market accounting rule that was put into place in 2007. Forcing banks , insurance companies and other financial institutions to mark to market assets such as subprime securities when there was no market is a major mistake. It is causing a death spiral downward even for banks and insurance companies that have positive cash flow. Unless this insanity is stopped, we will see the scorched earth scenario played out before our very eyes. This is unnecessary and can be stopped by the Obama administration, if they have the will power to do it.
The second damage residue left from the Bush administration was the eliminating of the uptick rule for short sellers. Removing the uptick rule just allows short sellers to pile on and drive stocks uncontrollably downward at alarming speeds. If you wonder how so much equity was lost in a blink of an eye since September 2008, you will find one very good reason in removing the uptick requirement. The SEC instituted this change in July 2007, and a volatile market quickly ensued. Let's put that uptick rule back in place.
The third policy, this one the Bush administration failed to enforce and is not being enforced today, is the policy against naked short selling. Short sellers are supposed to borrow the stock before short selling it in the market, thereby requiring access to the stock you are shorting. The SEC has failed to enforce this requirement, thereby allowing short sellers to pile on a pressured stock without taking this first important step.
I am 100 % supportive of all three actions. These times demand corrective measures now.