Michael Lewitt, President of Harch Capital Management Offers His Expertise On The Financial Crisis
Thursday, September 18, 2008PAUL KANGAS: Joining me now to talk more about the financial crisis gripping Wall Street is Michael Lewitt, the president of the money management firm Harch Capital Management. Michael, welcome to NIGHTLY BUSINESS REPORT.
MICHAEL LEWITT, PRESIDENT, HARCH CAPITAL MANAGEMENT: Thank you.
KANGAS: We heard reports late today that the government may be considering a Resolution Trust Corporation type of solution. Is this the best way to fix the problems in the financial system now?
LEWITT: Well, I think the market is looking for leadership, particularly on the part of the government. And I think this is at least one step in that direction. I think the issue is going to be that unlike the Resolution Trust Corporation in the early '90s, the types of assets that need to be sold at this point are very complex financial instruments. They are not apartment houses.
KANGAS: Derivatives and things like that, yes.
LEWITT: Derivatives. So it is going to be a much more complex enterprise on a vastly greater scale.
KANGAS: Well, we started the day with a massive liquidity injection by global central banks. Is this what is needed to boost investor confidence or do you see that as a Band-Aid approach?
LEWITT: No, I think it is an essential component of what is needed to get the plumbing of the system unstuck.
KANGAS: A good way to put it, OK. Well, many have said a big factor in the current crisis has been naked short-selling of financial stocks. Today the New York attorney general launched a probe of short sales of Lehman, AIG, Morgan Stanley, and Goldman Sachs shares. And the British banned short-selling. Where do you come down on all of this?
LEWITT: Well, I think that people who are engaging in speculative short- selling of these stocks, particularly at this time of crisis, really need to ask themselves why they are doing it. It is not a constructive activity.
KANGAS: I know why viewers are curious to know, what is the difference between short-selling and naked short-selling?
LEWITT: Well, naked short selling is when you simply don't borrow the stock and you are simply selling the stock short without borrowing it first. It's not done to hedge a position. It's done merely to bet on the stock going down. And it doesn't really provide any productive activity. It's just merely a bet on stock going down.
KANGAS: And you haven't made arrangements to borrow the stock that you are selling in the first place.
LEWITT: Right. Now it is not legal, but -- and there are laws on the books to prevent it but unfortunately those laws have not been enforced. And so now the SEC is taking steps to try to enforce those laws. But it would be much more effective for the SEC to put in place the uptick rule.
KANGAS: The uptick rule. Why did they ever take it out?
LEWITT: I don't know why they took it out. They need to put it back in.
KANGAS: Were they throwing a crumb to speculative investors -- or traders, I should say?
LEWITT: Perhaps. I don't know what they were doing. It has turned out to be a grievous error. They need to put the uptick rule back and do it right away.
KANGAS: OK. And you think it will happen, it will be restored?
LEWITT: I don't know. I mean, they've had opportunities to do it. They had an opportunity when they banned short-selling -- naked short-selling on financial stocks a few weeks ago. They have an opportunity now. They seem very reluctant to do it, I don't know the reason.
KANGAS: OK.
LEWITT: They need to do it.
KANGAS: But anyway, the events late today you think are very encouraging for the market maybe to form a bottom here, somewhere?
LEWITT: They are certainly a start. And they certainly show leadership on the part of those from whom we need leadership.
KANGAS: And that did what we needed on Wall Street.
LEWITT: Absolutely.
KANGAS: Well, that is very encouraging, Michael. And I want to thank you very much for joining us.
LEWITT: My pleasure.
KANGAS: My guest, Michael Lewitt, president of Harch Capital Management.
