$heff's $tation of $tocks & $olid DD

[Ex Blockman]

Interesting post from Brent on the H.I.S. Board. Keep in mind that we hear daily that NSS doesn't exist, but look at the hypocrisy of the SEC which became even more apparent last Tuesday. NSS doesn't exist! No, wait! It does exist, but only for 19 companies! No, wait, it doesn't really exist. We are just instituting this law for the NSS that we know only exists within these 19 companies. But not for any other! Ha-Ha! What a joke of a regulatory institution.

Anyway, here's Brent's find:


Why is the SEC manipulating the stock market?

Posted Jul 20th 2008 8:38AM by Peter Cohan
Filed under: Federal Natl Mtge (FNM), Wachovia Corp (WB), Washington Mutual (WM)
http://www.bloggingstocks.com/2008/07/20/why-is-the-sec-manipulating-the-stock-market/

The Securities and Exchange Commission (SEC) is becoming the very thing it is supposed to be stopping -- a stock market manipulator. The SEC was first established after the Great Depression to protect the general public from the shady stock dealings that caused that catastrophe. But the Wall Street Journal reports that the SEC has now become the epitome of the very thing that it's supposed to prevent.

That's thanks to a temporary rule it created last Tuesday that blocks the short selling of the stock of 19 big banks and financial institutions unless the short sellers can borrow those shares. (As Barron's [subscription required] points out -- it's interesting that the SEC has announced it is enforcing this so-called naked short rule since the practice is already illegal).

I can only imagine the profit opportunities available to those who had early access to this list of 19 -- which according to my calculations have risen an average of 27.5% since Tuesday. Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE) -- whose CEO made $20 million last year, according to AP -- are the biggest winners -- up 90% and 74.5% respectively since then. Meanwhile, all the other companies that the SEC did not protect are wondering why they were not on the list.

The SEC's actions raise many questions:

Why did the SEC decide to enforce the prohibition on naked short selling just on these 19 companies? Why not enforce it against all companies?

Why did the government allow our financial system to become so vulnerable that short sellers could easily profit from its fragility?

Why not punish those who mismanaged these financial institutions rather than those who profit from exposing that mismanagement?

I don't know the answers to these questions. My hunch is that the answers are a combination of a "free market" political philosophy, the way Wall Street gets paid -- as a percentage of big deals rather than the long-term profits (or losses) from them -- and the amount of money Wall Street gives to get politicians into office.

The SEC's actions suggest that it values the executives of those 19 companies far more than it does the viability of the financial system. If it had been concerned about protecting investors, it would have enforced aggressively its own regulations during the inhalation stage of the currently exhaling credit bubble.

Meanwhile, its decision to enforce its naked short selling rule for only 19 companies is a unique form of market manipulation -- the very thing the SEC was established to prevent.

Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter. He has no financial interest in the securities mentioned.