On Bloomberg radio yesterday morning former SEC Chairman Arthur Levitt Jr. categorically stated that he sees no value in reinstating the uptick rule. Levitt ruled the SEC from 1993 to 2001. Thus he was in charge of the regulatory agency for: the tech bubble, Wall Street Analyst scandals, Enron, WorldCom and Long Term Capital.
Need I say more? Unfortunately I do because he is very well connected politically and is now a senior advisor to the Carlyle Group. Thus, his word carries weight with the current administration in Washington and the SEC. Any hopes of the reinstatement of the uptick rule may now be dimmer than market participants would like. In the final analysis I hope Levitt is ignored because the elimination of the uptick rule has created much financial destruction.
On the other medium, TV, James Chanos successful hedge fund manager and famed short seller who manages Kynikos Associates was on CNBC Squawk Box. He categorically stated that the elimination of mark to market rules would not solve our problems. He thinks that we should focus on the Basel II capital requirements. In his opinion we should lower the capital requirements for financial institutions.
I would be concerned that lowering of those requirements would create even more moral hazard in a financial system that could not afford any more. Perhaps, we could do a bit of both – adjust both the mark to market and the Basel II requirements. However, we should be careful on both accounts and not go too far. Again, moral hazard is the unintended consequence that we want to avoid.