"Wall St's Naked Swindle"

[truehawk]

Quote from sprstpd:

That's crap. The whole slant of the article is laying blame at market manipulators, not the fact that this craptastic company deserved to go down in flames. Apply your quote to yourself.

The article doesn't mention the fact that
Bear Stearns and Lehman should have failed anyway because they were craptastic companies with craptastic risk management until the very end of the article (and only in brief passing).

Again you conflate naked short selling with Legal Short selling.



He makes the point that LEGAL short selling, which involves borrowing stock that exists to sell, serves a positive function.

And as you point out he he pretty much shares his view that Wall Street investment banks were NOT well run and had all become parasitic ticks on the back of Capitalism right though the article. He does not hide that they were mismanaged. He says it right up front and all along the way.

From the size of the bailout relative to operating, income Goldman was in worse shape than Bear with respect to being on the hook for Derivatives, it was just as ripe yet somehow miraculously GS was not shorted to death.

His point is that selling stock in excess of the number of shares that a company issued is counterfeiting a document that is convertible to cash and is illegal, but prime brokers do it to the tune of billions and SEC rules do not have any enforcement teeth. And they havn't since Reagen.

Thievery by counterfiting is NOT Capitalism because the IBs do it.
It is still Thievery, and risks breaking the trust necessary for a market to exist.

 

[i4i]

Lately, I've been thinking a lot about the opposite of naked short-selling: naked buying. It's easy to point out that you can't sell more than the outstanding shares in circulation. But the same logic doesn't seem to apply when it comes to buying. Suppose that XYZ issued 100,000 shares to the public and I happened to have bought the first 90,000. I am a buy-and-hold investor who plans to hold my position in perpetuity. One day, the stock price soars and the volume swells ten times its average daily volume. [By the end of the day, it's been secretly revealed to me that more than 10,000 share were in circulation.]

Now, technically speaking, you can't buy anything unless someone is willing to sell, and you can't sell what you don't already have. So the only way you can buy is when somebody essentially engages in "naked short selling". Hence my question. Is it considered illegal to conduct naked short selling when the market is plunging but perfectly legal in a rally?

Perhaps I got this all screwed up. I don't know. Maybe someone who's more astute in these matters could point me in the right direction.

 

[sprstpd]

Quote from truehawk:

Again you conflate naked short selling with Legal Short selling.

Sorry, no I'm not.

He does not hide that they were mismanaged. He says it right up front and all along the way.

Sure he mentions it, but it is not his focus. The general impression that I get when reading this article is that the author is commiserating that these companies are out of business which I have a *fundamental* problem with.

From the size of the bailout relative to operating, income Goldman was in worse shape than Bear with respect to being on the hook for Derivatives, it was just as ripe yet somehow miraculously GS was not shorted to death.

And yet as I recall GS stock went into a death spiral similar to BSC and LEH. If naked shorting wasn't behind it, then how could a company's stock get hit so hard? Gee I know, it's because people were worried about its credit default exposure and had no idea if it was worth anything. Regardless of selling, short selling, or naked short selling, the viability of GS as an entity was in question. You're making my point for me - that even without naked shorting a stock can plummet catastrophically because of its own mismanagement.

His point is that selling stock in excess of the number of shares that a company issued is counterfeiting a document that is convertible to cash and is illegal, but prime brokers do it to the tune of billions and SEC rules do not have any enforcement teeth.

That's fine. I do not condone naked short selling and the laws should be enforced to make it impossible. Just don't say it is the reason for the downfall of these companies because it isn't.

Thievery by counterfiting is NOT Capitalism because the IBs do it.
It is still Thievery, and risks breaking the trust necessary for a market to exist.

The market still existed and seemed to perform just fine when naked shorting was allowed.

 

[piezoe]

Strstpd, you really don't understand. The market does not function just fine with rampant naked short selling going on. That illegal practice creates pockets of problems throughout the market, and particularly for small companies whose access to capital may depend heavily on their stock equity.

Whether or not the Wall Street firms that were targeted were loaded with risk and would have failed anyway is immaterial when the issue is naked short selling. Illegal, naked short selling also creates problems for companies that are not crap, and it has the potential, if not stopped, to exacerbate waning public confidence in markets.
It's a serious issue.

You have an issue with the contentions in the article. Fine, no problem. Reasonable people can disagree. But please don't suggest that the markets are doing just fine with naked short selling going on. The U.S. markets have always been home to hucksters and hooligans, but that fact does not make these activities harmless.
Markets can only thrive in the long run when the participants have confidence in their integrity. To that end, these unsavory characters must be constantly weeded out. That is a job for the SEC and the Justice Department. When they fail to do their job we honest market participants are at risk.

 

[flytiger]

Quote from Misthos:

So, Fly - it's seems like you know a lot of people, seen a lot of things. What's the end game? How do you see things playing out?

Personally - I don't see a massive good government movement spearheaded by some third party - so my conclusion is that the whole system collapses from within.

What's a "collapse?" That's the tuff part. Who knows how bad it gets and what that means to the average person.

There is no guarantee anywhere that says everything will "be ok" because we're Americans. Everything is in play. Look at the moron coming at me defending ripping companies he deems "sickly". And Wall St still believes such. GS is lobbying to leave naked shorting alive, even after it almost killed them.

At best, years of zero or substandard growth. Breakdown in moral and societal standards. Violence. Lots of lawlessness. People have no hope. Get out. Look around, talk to people. They have reason to hate the stuffed suits, and they do. Goldman booking that profit set them off. And you have politicians who think they're above these people. How many times did you hear, "I don't care, I'm voting the way I want", or "this is my town hall meeting", at these Town halls. What a set of balls Rangel has, and Pelosi, who vowed equity and honesty, doesn't lift a finger.

How does it end? Let your mind wander.

Give yourself a little mindfuck over the weekend. I do this all the time. You make the decision. Take Pelosi's role, Obamas. You make the decision. Can you do what's right, or convenient? What are the consequences? Why can't the SEC simply do what is right? Can you see the torque from within rip the good ship Captured into shreds? And I can tell you, there are people there who want to do the right thing. A lobbyist told us two, maybe three years ago, they were afraid of catching a bullet. So, you tell me. Who's pulling the strings? Could you do what is right if you got the phone calls int he middle of the night my friends do? "Hey, Motherfucker. We know where your kids go to school." How would you like that at 2am? And don't tell me, "I'd show them." You'd shit your pants like everyone else. I know Corporate officers who left companies for this reason. But dipshit says, they're "sickly" companies. They don't just naked short. They distort, too.

How does it end? Like a poorly written Broadway play. Badly.

And btw, investigators, guys looking at this stuff, professionals, tell me I'm optimistic.

Oh. let's go one other place. Leverage. What's the most leveraged you can be? 20:1, 30:1? How about a Clearing firm serving these offshore HF"s naked shorting. What is the risk to a BD, or Clearing firm if you're allowing HF's to naked short a company to the tune of 5 times the float? We know one party easily could have hundreds of offshore accounts. If he blows up, and takes the Brokers with him, who cleans that mess up? Think about that one. And if you want to talk death knell to the consumer, where is his money? At theclearing firm. If you remember back to 1980, John Muir blew up. The customers were made whole, but in the time it took, the market cratered and no one could sell. They got crushed. You 've seen this with the Lehman stuff. But this time, what if it's so devastating, there is no bail out. You have to go to bds to augment SIPC. Who is going to be left? Just another pleasant thought that I don't think anyone has thought of, but I'm putting it out there.

 

[saliva]

Flytiger,

That is some serious allegations ure making. Although I don't agree with ya 100%, I think your point is more salient than most of other crap that floats around here. This economy is like a terminally ill patient dying from cancer. The best remedy is to get a damn surgery but the patient is too scared and relies on morphine to relieve his pain. Of course, it's only a temporary fix but the idiot thinks he's recovering since he doesn't feel the pain. But underneath it all, the cancer is having a field day, outsmarting its dumbass host.

Also why does naked short selling only matter in a bear market? I didn't hear anyone complain about it in the last six months as the markets recovered more than 50% of their losses. Surely there are naked shorties at every turn.

 

[ralph00]

This is a CLASSIC article. A must read. Is some of Talibi's rhetoric over the top ... yes. Still a classic.

IMHO, while the artcle spends a great deal of time talking about naked short selling, the overriding theme is the 'fakeness' of our modern economy. "House of Cards" may have been the title given to the Bear Stearns story, but it accurately describes this economy as well. Without zero interest rates, governemnt guarantees and giveaways to the large financial players, and a printing press run amok, this whole thing will collapse.

In the immortal words of Gordon Gekko ... "you're not naive enough to think we live in a Democracy!"

A couple of "money shots" from the article ...

Or what? That this was a brazen case of insider manipulation was so obvious that even Sen. Chris Dodd, chairman of the pillow-soft-touch Senate Banking Committee, couldn't help but remark on it a few weeks later, when questioning Christopher Cox, the then-chief of the Securities and Exchange Commission. "I would hope that you're looking at this," Dodd said. "This kind of spike must have triggered some sort of bells and whistles at the SEC. This goes beyond rumors."

Cox nodded sternly and promised, yes, he would look into it. What actually happened is another matter. Although the SEC issued more than 50 subpoenas to Wall Street firms, it has yet to identify the mysterious trader who somehow seemed to know in advance that one of the five largest investment banks in America was going to completely tank in a matter of days. "I've seen the SEC send agents overseas in a simple insider-trading case to investigate profits of maybe $2,000," says Brent Baker, a former senior counsel for the commission. "But they did nothing to stop this."

and ...

What really happened to Bear and Lehman is that an economic drought temporarily left the hyenas without any more middle-class victims — and so they started eating each other, using the exact same schemes they had been using for years to fleece the rest of the country. And in the forensic footprint left by those kills, we can see for the first time exactly how the scam worked — and how completely even the government regulators who are supposed to protect us have given up trying to stop it.

This was a brokered bloodletting, one in which the power of the state was used to help effect a monstrous consolidation of financial and political power. Heading into 2008, there were five major investment banks in the United States: Bear, Lehman, Merrill Lynch, Morgan Stanley and Goldman Sachs. Today only Morgan Stanley and Goldman survive as independent firms, perched atop a restructured Wall Street hierarchy. And while the rest of the civilized world responded to last year's catastrophes with sweeping measures to rein in the corruption in their financial sectors, the United States invited the wolves into the government, with the popular new president, Barack Obama — elected amid promises to clean up the mess — filling his administration with Bear's and Lehman's conquerors, bestowing his papal blessing on a new era of robbery.

Indeed.

 

[flytiger]

Quote from ralph00:

This is a CLASSIC article. A must read. Is some of Talibi's rhetoric over the top ... yes. Still a classic.

.[/i]

Indeed. [/B]

You see, this is my point. He was provided the information, the data. But he is on the left. And he is a free lancer. Rolling Stone acquired the article. Maybe he is over the top. But by Wall St. buying off the MSM (read Deepcapture for emails and proof of that), they have allowed the bloggesphere to carry the ball.

Now, regardless of where you stand. These are the people who are bringing the story to flyover land. Naked shorters are distorting the market, stealing returns from everyone NOT engaging in such, and as the story gets told, turning the angry townsfolk against Wall St.

I am, after years of this , of the mind that Wall st. needs to be leveled. We need a new breed of Wall Streeter who can foster returns for his clients, and not steal the rest of us blind. Blankfein, Mack, the likes of Corzine, Paulson, Geitner - they have to go. IF they don't go, you guys have to get real jobs. The public will not let this continue much longer.

What'll it be, fellas? A "come to Jesus" moment, or slinging hash at a flop house. No inbetween.

BTW. Since this is leading to some thought. I'll give you another prediction UBS capitulated because the DOJ was going to indict THE FIRM. That would lead to loss of banking license. That's why DOJ got names of Americans, and why UBS struggles. I think because, let's face it, everyone was in on the Lehman and BSC raid, the DOJ has to go there. But it is impossible to indict the firms. I feel, after following the UBS thing closely, you will see major executives resign, as to not take the firms with them , and resign. If you think that is bizarre, what if I told you two years ago Fuld and Lewis and Thain would be disgraced?

 

[flytiger]

http://thesanitycheck.com/BobsSanit...ays-darkest-before-all-the-lights-go-off.aspx

Good read. Great guy. He is the one who alerted byrne to the mess. Unfortunately, I was around before he found out. Ignorance has its bliss, and that I've been denied.

 

[sprstpd]

Quote from piezoe:

Strstpd, you really don't understand. The market does not function just fine with rampant naked short selling going on. That illegal practice creates pockets of problems throughout the market, and particularly for small companies whose access to capital may depend heavily on their stock equity.

Yes, I do understand. The market might not function with rampant naked short selling, but in reality there is not rampant naked short selling. You know why? Because it is a dangerous game to play unless you know for sure you are shorting a dying company.

Whether or not the Wall Street firms that were targeted were loaded with risk and would have failed anyway is immaterial when the issue is naked short selling.

No it isn't. And the reason I know it isn't is because when shorting was declared ILLEGAL for a short period of time, financial stocks all got HAMMERED! You couldn't even short those stocks and yet they plummeted! Now if you add in naked short selling, you might accelerate this process, but please don't tell me that naked short selling is the root of the problem.

Illegal, naked short selling also creates problems for companies that are not crap, and it has the potential, if not stopped, to exacerbate waning public confidence in markets.
It's a serious issue.

Really? Where are all your examples?

But please don't suggest that the markets are doing just fine with naked short selling going on.

The market seems to be operating just fine even with naked short selling. So yes, that is exactly what I am suggesting. I wish the SEC would crack down on naked short selling, but it is not like I don't trust the entire system just because naked shorting exists.