Levitt and Chanos Speak Out on Investor Hot Button Issues

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.

Comments

[kmf:]

I don't have the data on the correlation of stock prices and the uptick rule so I hesitate to comment but I will anyway. The uptick rule was installed because great pools of money drove down stocks. Pools were "outlawed" but hedge funds were not-need I say more...........

Mar 05 08:21 AM

[User 370081:]

"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."

Why would we listen to one of the world's biggest short-sellers for advice? Chano's funds make money when markets drop. Based on the mere fact that Chano says it won't work, my guess is that it could work.

Mar 05 08:36 AM

[ElGordo:]

Jim Cramer says the uptick rule should be reinstated. I have greater faith in Cramer's opinion than either Levitt's or short seller Chanos.

Mar 05 01:59 PM

[Sigmax:]

It is amazing to me and the investing public, that our elected and appointed government officials have done NOTHING to fix and enforce the malfunctioning in the financial markets. The SEC must restore the Uptick Rule immediately and state that enforcement will be extremely vigilant for those violating the rule and for those not legally borrowing securities prior to a legal short sale. The legal plus "illegal" short interest dwarfs the shares outstanding in many issues (i.e. the financials). That dynamic and the lack of enforcement has led us to where we are today and makes it impossible for a buyer of any securities to have any confidence to stay invested in the markets. It is mind boggling that they do not make this fix......

Mar 05 04:14 PM