Subject: An open letter to the SEC and a plea for sanity

September 15, 2008

Dear SEC:

How many more financial institutions must go out of business at the hand of aggressive short sellers (Bear Raids) before the SEC realizes they need to act? The promises of Naked Short Rules and the reinstatement of an Uptick rule that was repealed now a year ago in July 2007, seems to be just that; as we watched Fannie, Freddie and now Lehman circle the drain and our largest insurer AIG, next in line for liquidation. August 19th Chairman Christopher Cox stated proposals would be coming in a few weeks to reign in the Naked Short sellers, as yet we are still waiting.

This is madness!

Terrorism takes many forms and the ability to crush our Banking system through these Bear Raids is quite effective. Liquidity has been crushed as financial institutions have b een robbed of their ability to raise much needed capital through the sale of equity. The aggressive shorting has suffocated these companies leaving liquidation of assets as the only remaining recourse. (or take over by the government as in the case of FNM and FRE)

The resulting liquidations then results in depressed prices in numerous other asset classes (CDO, Bonds, Preferreds, Auction Rate Securities) that ripples through other balance sheets due to the nutty Mark to the Market rules. The selling begets selling and the spiral continues. It is a perfect storm that is most likely being orchestrated by some of our enemies via hedge and sovereign wealth funds (whom have no transparency rules). The trade of “buy oil and short the banks” all began in July 2007 when the Uptick rule was repealed. Oil went from $70 to $145 and the Banks lost 70% or more of value during this period. Kill our economy, destroy the financials and influence an election….seems more than plausible when you consider who has the capacity to orchestrate such a move. (Dubai sovereign wealth fund alone is over a trillion dollars)

For20those who say Shorting did not cause the problems we now face, in part this is true, but clearly shorting has wildly exaggerated the problems and robbed the capital markets of solutions and time. The Uptick rule would have acted as a circuit breaker to slow down the manipulative selling. Just like the trading curbs that were employed after the 1987 crash. The Uptick rule was there to protect against short sellers who desired to drive down the price and in turn potentially create a panic and or bankruptcy. Clearly had the Uptick rule been in place this past year, these companies would have had the time to raise capital through equity sales instead of the now asset sales, bankruptcy and government assistance.

Short Sale Rules do not prevent shorting, they just prevent manipulation. (Which is supposed to be illegal.) Those who defend short selling state that it serves the purpose of preventing market bubbles. But having an Uptick rule in place does not prevent shorting into these rallies of over exuberance. On the contrary, other than the hedge funds and a handful of broker dealers, who benefited from the repeal of the Uptick rule? Only those who wish to pour gas on a fire are helped by the absence of this rule. This is irresponsible to allow this to continue. The jobs lost and impact to our economy has already been tragic. Please stop this madness! The lessons of the 1930’s and the then testimony by Joe Kennedy and JP Morgan do not need to be relearned.

Sincerely,

Charles L. Livengood; Private Investor