Tuesday, September 23, 2008

Law and Order

I want to touch on the rule of law, order and further to that a basic sense of decency. I have been harping that the confidence in the markets is deteriorating, and a sense of "the game is rigged" spreading rapidly. As recently as last Tuesday in my post Some Things Just Don't Change, I said the following...

"I do believe we are witnessing the destruction of what was once the greatest capital market the world has ever seen. The confidence to transact business on a fair and unbiased basis is being destroyed by the I see nothing, I hear nothing Seargent Schultz-like attitude of the SEC. First we let Wall St. royally screw over scores of international funds by selling them toxic paper with bought and paid for fraudulent AAA ratings. Then when the stock gets punished, these same Wall St. firms lie that their capital positions are adequate yet go hat in hand to sovereign wealth funds pleading for money. And by golly they get it! Unbelievable. And then when the firm blows up and is sold for peanuts, golden parachutes are awarded to senior execs. Did I miss something? Oh yeah, I did, lobby local congressman and senators to go on pompom TV and wax how FASB 157 is onerous and in precarious times such as these should be suspended. Yeah that'll fix everything.

I want to bring to your attention to what has transpired in India in which a CEO was bludgeoned to death by his laid off employees. This is terrible news as it shows how quickly things can spiral out of control.

I bring this up because as anyone with an IQ over room temperature knows, people can accept bad things happen as it is part of life. Some deal with it better than others but on balance people accept it, deal with it and move on. What becomes problematic is when people have bad things happen to people as a result of other's actions and then those responsible, unjustly enriched beyond imagination ride off into the sunset, a truly golden one to be specific.

Recently market participants in Pakistan erupted and attacked the stock exchange there due the KSE's extensive plunge. Now this is what is happening just with a drop in the market. Now add in deceit, fraud, and misrepresentation and you have an extremely lethal mix.

I have taken many potshots at Chris Cox and the impotency at the SEC as he and his lieutenants have stood idly by while main street has been robbed and looted by Wall St, and many they have enabled, but this time I have a very serious recommendation for Mr. Cox, and for that matter all of the state attorneys' general and politicians. You had better get a handle on those who have raped and pillaged the system for their own profit at the expense of the masses. I am not advocating a witch hunt but I am advocating bringing the wrongly enriched to justice.

And no Mr. Cox, for the hundreth time, making a wagonload shorting a toxic mortgage laden, overleveraged, lying to the public on a weekly basis, bookcooking, begging for bailout financial stock is not wrongly being enriched. In fact, you should send a letter of thank you to those shorts for bringing the matter to the attention of the markets so those with half a brain could sell out before it hit zero wiping out retirement accounts.

Most have a sense of right and wrong and when a wrong is committed and is evident to even the dimmest among our midst, expect punishment to be meted out. The problem occurs when this wrong is not dealt with by the acknowledged legal authorities people can, and as history shows often do, take matters into their own hands. I in NO WAY, SHAPE OR FORM, advocate or recommend any type of vigilantism but history tells us matter of factly, it happens.

The public needs to feel that there is law and order, that "the game" is fair. That if you cheat, you will be punished harshly, not just a slap on the wrist and above all you WILL NOT BE ABLE TO KEEP YOUR ILL GOTTEN GAINS. The public see men like Mozillo of Countrywide, O'Neal of Merrill, Paulson of Goldman, yes that same Paulson who is now Treasury Secretary, exiting stage left with tens and hundreds of millions and the blood begins to boil. As I have said before, in the wild west of the turn of the century the only thing that kept a poker game honest was each players six-shooter on their hip.

The SEC is supposed to be that six-shooter in the eyes of the public. A fine of 1 million when the reward for impropriety was 25 million is a wonderful risk reward trade as any business school will teach it's students. I would surmise many Ivy League MBA students would do 10 years standing on their heads for a 25 million dollar payout.

Yes, I am worried, and this news from places like Pakistan and India only worsen it. Where are the saner heads, where are the adults? I have been asked today as to what would fix this. Well, here is my very simple suggestion for those thinking, "okay know-it-all, what would you do ? "

Open the books, detailed, no more hiding, FULL unemcumbered disclosure. No more off balance sheet Enronesque crap. No more level 2 or level 3 smoke and mirrors. Full confessional immediately. Mea Culpa. If these financial stock CEO's are so patriotic then show it. Doing this would be the patriotic thing to do. And yes Ms. Burnett of CNBC it might even be the patriotic thing for you to ask these type of questions to politicians and financial executives.

Minimum margin requirements on all of this paper whether written or bought, no exceptions. No margin, no position. 100 million market participants in the U.S. on the retail level adhere to this as of 4pm EST each and every day. No questions, no excuses. NO BID, NO VALUE Mr. Bernanke, no matter what your ivory tower 'held to maturity' formula may tell you. Mr. Margin Clerk sells you out, too bad, debate illiquidity on Jeopardy.

Rescind the short selling rule immediately. This way we can avoid the air pocket on the bid side which looks to be dead ahead.

I am no expert in global high finance but this seems to me to be a sensible place to start.


Good speculating to you all and never forget that "an investor is a speculator who made a mistake and will not admit it".

Open Positions:
Long 2 units of Ultrashort S&P ticker SDS @ 61.75 stop at $57.69
Long 2 units of Ultrashort Dow ticker DXD @ $57.85 stop at $53.79
Short 1 unit Int'l Bus Machines ticker IBM @ $129.05 stop at $126.36
Short 2 units of Apple ticker AAPL @ $178.05 stop at $177.76
Short 2 units Salesforce.com ticker CRM @ $56.05 stop at $60.62
Long 2 units Hecla Mining ticker HL @ $5.20 stop at $3.89

2 comments:

Anonymous said...

Your reasoning is without flaw... but the culture is probably beyond hearing.

I've often wondered during the last couple of decades why this gun-toting country hasn't seen violent reactions against corporate injustice. For example, an HMO denying treatment leading to the death of a child; why doesn't the father go after the CEO?

I'd say the India reaction has caught the attention of exec's around the world.

Harleydog said...

why would they listen, too busy watching American Idol and the like.

yes they pay attention when it hits home. they will watch when the financial levees break and all hell breaks loose.

HD