Tuesday, March 10, 2009

When You Can Make the Market Go Up...Change the Rules

More news of regulators meddling with the market again. First, the uptick rule:

The U.S. Securities and Exchange Commission may act as early as next month to consider a proposal to reinstate the uptick rule, a source familiar with the matter said on Tuesday.

Earlier on Tuesday, Democratic Rep Barney Frank, the chairman of the influential House Financial Services Committee, told reporters he was hopeful that the uptick rule would soon be reimposed.

New SEC Chairman Mary Schapiro has previously said the agency would consider whether to reinstitute the uptick rule, which forces short sellers to sell at a price higher than the previous trade.

Then, mark to market. For now, they're saying no change, but I wouldn't be surprised if something happens. Although if we made it this long, they might just stick with it:

The U.S. Securities and Exchange Commission is not planning to suspend the controversial mark-to-market accounting rule that has forced banks to report billions of dollars in asset write-downs, a source familiar with the matter told Reuters on Tuesday.

Rumors have circulated that the U.S. government was planning a temporary suspension of the accounting rule, which requires financial services companies to value assets at current market prices.

My take: I don't believe anything Barney Frank says or does. But that's beside the point. Beyond that, I'm not against the uptick rule. I don't think it creates anything unfair in the market. Remember last fall when short selling was banned? All of this disruption of the market isn't a good policy in my opinion.

Mark-to-market is a little different. I was never a huge fan of this system. It basically takes a worst-case-scenario look at these balance sheets because the market for so many securities wasn't there. To me, writing down all those assets as worthless caused more panic than the potential good it did. Thus the need for bank bailouts, leading to more panic and market losses etc. Not all of those assets are worthless. It does allow for a clearer look into what the banks were holding, but just because we want to know what they have doesn't mean we need to make up a value of what they're worth.

Most of this has a feeling of those in charge doing anything they can to drive stocks higher. The market works. Don't mess with it. But that's just one guy's opinion.

Reuters articles:

Mark to Market

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