May 5, 2009
I have no pony in this race. I am an individual investor who checks in on the market several times a week. But I do wish to make some observations for your consideration:
1. Jim Cramer has NO credibility on this issue. I mention him because he devotes 4-5 segments a week of his Mad Money show to the uptick rule. He does this because he needs a scapegoat. He did a number of shows in 2007 where he mocked the subprime non-issue (saying subprime comprises such a tiny percentage of all mortgages that they will never have any real impact on our economy) He even urged his viewers to take advantage of any blips down in the market because of silly subprime worries to aggressively buy stocks. This was when the Dow was near 14000. So of course he has to find something to blame for having so horribly misled his viewers.
2. The uptick rule did not prevent the catastrophic 80% decline in the NASDAQ from 2000 until 2003. Perhaps the uptick rule actually contributed to inflating the bubble as short positions were harder to establish as the market skyrocketed.
3. No other major market in the world has an uptick rule. Countries with stable or growing economies generally have well-functioning markets. No artificial market regulation is necessary for accurate price discovery for equities in other world markets. Why should the U.S., the standard bearer for free market capitalism, be any different?.
4. When short-selling was banned completely for selected financials in the summer of 2008, share prices of those stocks still fell sharply. So to blame the lack of an uptick rule for the decline in the financial stocks is specious.
5.. Would it have been better if Fannie Mae, Freddie Mac, AIG, Bear Sterns, Washington Mutual and Lehman Brothers kept raising private capital as their investments continued to sour, thereby taking more and more investor money down with them when they inevitably failed? Firms that took so much risk should not be rewarded or protected by artificial market regulation.
Despite my strong opinion that the uptick rule is unnecessary, NAKED SHORT SELLING MUST BE AGGRESSIVELY ENFORCED BY THE SEC.
THAT SHOULD BE YOUR PRIORITY.