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Monday, September 15, 2008 1:58 PM

Moody's, Fitch, S&P, SEC are Useless

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As predicted, SEC planning measures to rein in aggressive short-selling partly blamed for Lehman's demise.

With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies.

During emergency meetings between federal officials and investment bank executives over the weekend, SEC Chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive "naked" short-selling, a person familiar with the matter said Monday.

Unlike the SEC's temporary emergency ban this summer covering naked short-selling in 19 stocks, the new measures would apply to trading in the broader market.

The measures likely would include removing an exception for market makers in options on stocks from rules restricting naked short-selling, and a tightening of anti-fraud rules related to that activity, according to the person familiar with the matter.

Those two measures could be put in place administratively by quick approval of the SEC commissioners. Another change, reducing from 13 to five the number of days that short-sellers would have to deliver stocks after an initial failure to do so, would require a public meeting and formal vote to propose it as a new rule.
Naked Shorting Zero Role In Demise Of Lehman

Naked shorting played no rile in the demise of Bear Stearns or Lehman. The former is a long held belief, the latter is a fact. Inquiring minds might be asking for proof.

Proof is actually easy to find. There was not a single willing buyer in the weekend poker games with Lehman as the pot. Merrill Lynch (MER), J.P. Morgan Chase (JPM), Goldman Sachs (GS), Citigroup (C), Bank of America (BAC), Barclays, and others were all players at the table. No one would risk a dime without Fed guarantees.

Lehman's market cap is now $129 million. Anyone of the players could have had it yesterday for a mere $2 billion. No one would make a bid. All the players knew Lehman was worthless.

Exactly how is it that naked shorting is responsible for no bid by the players? If Lehman had any worth, wouldn't someone have seen it? If by some miracle naked shorting is responsible, the shorts should be thanked for getting Lehman to its proper valuation: zero.

Fitch Downgrades Lehman

Proving how completely useless it is, Fitch Downgrades Lehman Brothers Holdings Inc. to 'D' on Bankruptcy Filing.

Fitch Ratings has downgraded the long- and short-term Issuer Default Ratings (IDRs) and outstanding debt ratings of Lehman Brothers Holdings Inc, (LBHI), parent of Lehman Brothers Inc and other subsidiaries as follows:

--Long-term IDR to 'D' from 'A+';
--Short-term IDR to 'D' from 'F1';
--Senior debt to 'CCC' from 'A+';
--Subordinated debt to 'C' from 'A';
--Preferred stock to 'C' from 'A'.
If that is the best Fitch can do, then why bother? Moody's and the S&P are equally useless.

I repeat my long standing call: Time To Break Up The Credit Rating Cartel.

Inquiring minds who read the article will discover that it was SEC sponsorship of Moody's, Fitch, and the S&P that made them the useless parrots they are today.

Mike "Mish" Shedlock
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