Prem Watsa of Fairfax Financial –  one of several targets of short-selling attacks – in an interview with financial editor Diane Francis in the National Post:

“Q What stock market rules contributed to the meltdown?

A Eliminating the uptick rule [can only short on upticks in stock prices] was a mistake and so is short selling without borrowing the stock first. The ban on shorting financial institutions is lifted again and the SEC is debating whether to bring back the uptick rule again. What we need more of is transparency in all markets, including with respect to shorting and derivatives.

Q What of the role of boards of directors?

A In a bubble it’s difficult for boards of directors. Compensation should be long term. It should be stock-based and not cash. Our company’s compensation system is focused on the bottom line, not top line, and is long term. The Romans built strong bridges because their engineers had to stand under them as the army crossed them for the first time. Responsibility brings better results and aligned interest with partners.”

My Comment:

Watsa is an interesting figure to listen to on the financial crisis. Born in Hyderabad and educated in Chemical Engineering at the Indian Institute of Technology, he is the founder, CEO, and chairman of Toronto based Fairfax Financial, as well as a director and member of the risk committee at ICICI Bank in India. He’s been called India’s Warren Buffett and he did handsomely for Fairfax investors, turning shareholder equity from $2 billion in 2006 to $6.5 billion in 2009 by betting against credit default swaps.

Besides specific rules like the uptick rule, he cites the emphasis on ratings (versus due diligence or prudent risk management) and an increasingly short-term bias in the way companies, shareholders, and money managers act.

What does that amount to? A concern with the way things look, rather than the underlying reality.

It was the focus on labels and not reality that did the capital markets in.  At least, that’s my generalization