Submission to the Cabinet Office

Henry C.K. Liu hliu at
Mon Sep 17 08:36:19 MDT 2001

Charles Brown wrote:

> CB: Isn't the "cause" of the recession also the business cycle ?

Yes, but the Fed's responsibility is to minimize the volatility of the recession by
preventing pre-emptively an overheated bubble econcomy.  Greenspan feel for the
illsusion of finally having conquered the business cycle, but innovative financial
devises known as structured finance (drivatives) and productivity from the New
Economy.  The reality was that he was merely borrowing from the future to pay the
present and robbing the middle class to pay the market manipulators.  It is still
going on right now with the Fed supporting the market so that the big player can exit
gradually at the expense of the little guys.

It is going to be a wild week.  Mutual funds can borrow from banks to meet
redemption.  What if the collateral shares never recover before the loan is due?
The SEC might as well introduce a rule that prices cannot fall.
This is no longer a free market.
The Plunge Prevention Team wemt to wrok and stabilize the free fall fo the DOW at 600.

The Dow will fall to 7000 before the end of this month.

Henry C.K. Liu

Financial Times     09/14 20:20
 SEC Adopts Temporary Rules for Stock-Market Opening (Update2)
 By Neil Roland, Judy Mathewson, and Vicky Stamas

Washington, Sept. 14 (Bloomberg) -- The Securities and Exchange Commission adopted
temporary rules that seek to keep stocks from plummeting when U.S. markets open Monday
after a terrorist attack on
New York wiped out four days of trading.

The five-day emergency rules let public companies repurchase stock without following
limits on how many shares they can buy or restrictions forbidding buybacks at the
beginning or end of a trading day. The SEC, which polices U.S. stock and bond markets,
for the first time used congressionally granted
emergency authority to temporarily change its normal rules to respond to a crisis.

``This will make it easier for companies to buy at a tense time when there are
concerns that the markets may decline,'' said Stuart Kaswell, general counsel for the
Securities Industry Association, a brokerage trade group.

The SEC, under new Chairman Harvey Pitt, acted to help get U.S. markets back on their
feet after devastation in New York's financial district, where bond broker Cantor
Fitzgerald LP lost around 700 workers and Morgan Stanley Dean Witter & Co. lost 22
floors of offices when the World Trade Center's landmark 110-story towers collapsed.

Using for the first time its emergency authority to temporarily change rules, the
SEC's rule package also would let mutual funds borrow money from affiliated banks so
that, if mutual fund investors rush to redeem shares, fund companies can pay them
without being forced to sell stock.

Avoiding `Downdraft'

`They're worried that people are going to come in after this terrible national
catastrophe and all want to sell everything,'' said Marianne Smythe, former head of
the SEC's investment management division and a
lawyer at the Wilmer, Cutler & Pickering firm. ``If you can borrow the money'' to pay
for fund remptions, ``then you are not going to have to go into the marketplace and
sell securities and just add to the downdraft.''

The SEC's action suspended for next week restrictions that limit company stock
buybacks to 25 percent of a day's small trades. It also exempts companies from a rule
saying that a company buyback can't be the first reported trade of the day and can't
occur during the last 30 minutes of trading.

Some of the changes are aimed at solving technical or administrative issues, such as
making sure accountants aren't charged with auditor independence violations if they
help clients put back together records lost after two hijacked airliners were flown by
terrorists into the World Trade Center's towers. Independence rules normally forbid
auditors from helping to prepare company records they will later audit.

Repurchases Demonstrate Confidence

Under the changes, companies for five days also can repurchase shares without running
afoul of accounting rules that could force a large write-off if buybacks occur close
to the time of a stock-swap merger.

Having companies prepared to buy their own stock can help demonstrate confidence in a
company and markets and can provide a ready buyer to bolster a stock's price if sell
orders surge, experts said.

``Repurchases can be a source of liquidity for the market,'' SEC General Counsel David
Becker said. ``We want to prevent a situation where there are serious order

Becker said he doesn't expect stocks to fall dramatically Monday, though he said
companies have told the SEC that they find the temporary rules ``extremely useful.''
He also said he doesn't expect the SEC to extend the rules beyond next week.

``What you're seeing is a quiet, responsible response to an extraordinarily staggering
national tragedy which hit the financial community with particular force,'' said Joel
Seligman, dean of the Washington University law school in St. Louis.

Other Changes

The rules also would let brokerages calculate net capital without considering the four
days the market was closed; let mutual funds borrow from and lend to ``related
parties,'' and relax a requirement for in-person
meetings of mutual fund boards.

The SEC's unprecedented action follows moves by Congress, in 1990 and 1996, that gave
the agency power to ``summarily'' take emergency action  to ``maintain or restore fair
and orderly securities markets'' and to grant exemptions from SEC rules.

``This is like a magic wand-type of provision,'' Seligman said. ``You can do anything
you want, with very few restrictions.''

Unless trading systems fail during a Saturday test, the New York Stock Exchange, the
Nasdaq Stock Market, and other U.S. markets are set to be back in business Monday at
9:30 a.m. Trading floors have been quiet since terrorists on Tuesday flattened the
twin 110-story World Trade Center towers and forced the evacuation of Manhattan's
financial district.

In public comments this week, Pitt talked about easing repurchase restrictions as a
way to provide stability in the markets.

Buyback Flexibility

`We're pleased to see that flexibility'' created by the SEC action on buyback rules,
said Joseph A. White, chief financial officer at Insituform Technologies Inc. ``That
should give more reassurance to the market.''

Chesterfield, Missouri-based Insituform, which repairs tunnels and pipelines, added 1
million shares to its existing 1.5 million-share repurchase authorization in a bid to
soothe investors, White said.

Cisco Systems Inc., the largest maker of computer-networking equipment, yesterday said
its board had authorized the repurchase of as much as $3 billion of stock over the
next two years.

At least 20 U.S. companies followed today with announcements about new, expanded, or
continued buybacks.

H&R Block Inc., the world's largest tax preparer, today said the company had new
authority to buy back 15 million common shares, on top of a 12 million-share buyback
authorized last year. Kansas City-based H&R Block said the repurchase wasn't prompted
by this week's catastrophe, though it acknowledges that
it may prove helpful on Monday.

Pressure on Stock

``The timing could not have been better,'' said investor relations director Mark
Barnett. ``As a result of this authorization we're in an excellent position to support
our shareholders in the event we would see a lot of  pressure on our stock.''

Traders saw a demonstration of a buyback's impact a day after trading was halted on
Oct. 27, 1997, when the Dow Jones Industrial Average fell 554 points.

International Business Machines announced a $3.5 billion buyback authorization on Oct.
28, and the Dow Index rose 337 points that day.

Shaw Group Inc., a Baton Rouge, Louisiana-based power-plant builder, issued a
statement saying it may buy back as much as $100 million of  stock ``to demonstrate
our confidence in this country's financial markets.''

 HCC Insurance Holdings Inc., a property and casualty insurer that expects some claims
related to the World Trade Center's destruction, also said it's ready to repurchase 3
million shares, just in case.

``We've done it on a defensive basis so that if something negative should happen in
our stock, we'll be able to maintain orderly trading,'' said Stephen L. Way, chairman
and chief executive. ``I really don't think it is going to happen this time, but if it
does, we'll be ready to go.''

SEC Takes Action To Facilitate Reopening of Fair and Orderly  Equities Markets



Washington, D.C., September 14, 2001 – The Commission today announced that it has
taken the following steps to facilitate the planned reopening of U.S. equities markets
on Monday, September 17, 2001. These markets are the world's strongest and most
vibrant, in spite of the heinous acts of last       Tuesday.

The Commission has used, for the first time, its emergency powers to ease certain
regulatory restrictions temporarily. The key actions are the following:

Public companies may repurchase their own securities without meeting the volume and
timing restrictions that ordinarily would apply.

Public companies that repurchase their shares will not have adverse accounting

Brokerage firms may calculate net capital without considering the days the market was

Mutual funds may borrow from and lend to related parties.

In order to facilitate mutual fund board meetings, the Commission has relaxed
requirements for in-person meetings.

 Accounting firms may provide bookkeeping services to and help recover records for
clients with offices in and around the World Trade Center, without violating auditor
independence rules.

Copies of the orders and interpretive release are available on the Commission's
website, at

The SEC has placed additional information for investors and market participants on its
website, and established information telephone lines for  each. Investors can e-mail
questions to the SEC staff at
help at     The toll-free investor telephone number is 1-800-SEC-0330. Firms
seeking  additional relief under the Financial Responsibility Rules should call the
SEC staff at 202-942-7891,
202-942-7892 or 202-942-7893. All other firm inquiries should be directed to

The Commission will monitor the situation. Investors should be assured that U.S.
markets will function effectively and fairly, and that market and investor protections
are squarely in place. Market participants
should be assured that the Commission and its staff will be available to respond to
issues raised by the extraordinary circumstances of this week.

Regulatory and Interpretive Releases

Emergency Order: Issuer Repurchase of Securities

Mutual Fund Exemptive Order

Interpretive Release on Auditor Assistance to Clients

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