These are challenging times and I do not envy your position. Therefore, the following is provided for consideration.
SHORTING STOCKS: The approach of limiting shorting to selected financial stocks is disturbing. Ironically, after months of market volatility, action on shorting is taken only after the stocks of Goldman Sacks (Paulson’s alma mater) and Morgan Stanley take serious hits - Goldman down 47% and Morgan Stanley down 70% from Sept. 10 to Sept. 18 (intraday).
GATED COMMUNITY: Now we have created a gated community for financial firms - the creators, distributors and users of the toxic products – what about the rest of the market!!!
NAKED SHORTS: The talking heads on TV endlessly discuss the attack of naked short sellers. I do not know who these naked short sellers are – do you?
Stocks can easily be shorted through most investment banks and on-line brokers. Bottom line – stocks go down because fundamentals are weak – period.
WHAT SHOULD BE DONE: If the equity market is so weak to warrant governmental intervention, either limit shorting on all stocks, or re-instate the uptick rule. Note: market volatility has increased since the uptick rule was eliminated on July 6, 2007. I suggest reinstating the uptick. As it stands now, the Wall Street cartel get special treatment once again.
SUGGESTED READING: I suspect many policymakers do not understand the BS that goes on at investment banks (I have worked at a few in the past). You or your staffers may benefit from reading "A Demon of Our Own Design: Markets, Hedge Funds, and the Perils of Financial Innovation" by Richard Bookstaber. It is a quick and lively book.
I have views on other processes in play at the moment, but I know your time is limited. If you, or your staff, have questions, feel free to contact me.
Respectfully and hopefully constructively,
San Francisco, CA