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Why the Thundering Silence on the 10A-1 Repeal?
Board: Berkshire Hathaway

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By TMFMillerTime
June 25, 2007

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As I was walking down the street one day
A man came up to me and asked me
what the time was that was on my watch,
yeah And I said:
Does anybody really know what time it is?

http://tinyurl.com/37htnr

"It's a historic day at the commission," Republican commissioner Paul Atkins said. "We are eliminating rule 10A-1 today because we have determined it is simply not needed."

Oh my God...

I think it's 1985, maybe 1986, maybe 1925... as the song says, who knows. I do know this... history doesn't repeat but it rhymes, and there's no new thing under the sun.

Rule 10A-1 was part of the 1934 Securities Exchange Act, that little piece of legislation brought to us via the pain of the preceding years. 10A-1's function WAS to eliminate downward pressure on stocks and forestall manipulation and short attacks on stocks. Wasn't this rule a built in stabilization mechanism to combat mass panic - akin to the trading curbs put into place by the exchanges? Why then the thundering silence on its repeal?

Did you know that just last March, Goldman Sachs agreed to pay 2 million in fines for short selling schemes that involved, among other things, violating Rule 10a-1? Not any more. Let's see a show of hands... who thinks there's going to be some serious manipulation of individual securities on the short side? Just how fearsome do you think the next major market downturn might be... with hedge funds falling over each other to make money. Under the new rule, or lack of the old rule, companies like Goldman who run prop desks, can take advantage of any downturn that may cut into their Private Equity earnings, and short a downside hard. It's being suggested that the 416 point decline last February 27th (the 7th largest point drop ever though admittedly only a 3.3% decline) may well have been flamed by the fact that ETF's were already allowed to be shorted on downticks.

"It's a historic day at the commission," Republican commissioner Paul Atkins said. "We are eliminating rule 10A-1 today because we have determined it is simply not needed."

Uhhh yeah, right. It almost seems like they did a study of seat belts and found they were unnecessary (assuming there were no crashes). Individual investors better learn how to confidently value their stock holdings. We're liable to have our mettle tested. Berkshire with its cash and its stable of wholly owned companies looks interesting.

Cui bono, indeed. It's time for a couple of re-reads. First, I really recommend Reminiscences of a Stock Operator by Edwin Lefevre. Then I recommend we go back to THE INTELLIGENT INVESTOR... and re-read the chapter titled
"The Investor and Market Fluctuations"

If you don't have it, go to this Amazon link http://tinyurl.com/yw9mlj and search on this phrase: the true investor is scarcely ever is forced to sell his shares.

It will take you to page 203. Read from the second paragraph down thru the first paragraph on 204.

I especially recommend you consider this phrase...
He would then be spared the mental anguish caused him by other persons' mistakes of judgment. On the next roll of the dice, it may not exactly be mistakes of judgment we face but it'll still be true... you can't be forced to sell against your advantage (barring buyout, etc.)

Cui bono, it's been very easy being in the market over the past few years. Here on the Berkshire board, even a few of the faithful are arguing for a few prayers tossed to a Golden Calf, re: dividends, whilst Prophet Buffett is high on the mountain communing with systemic risk and his horde of cash. Will he be proven right one last time? It would be a magnificent end to a preternatural investing career now, wouldn't it? :)

 


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