The Markit Group: A Black-Box Company that Devastated Markets

    Although much attention has been directed at the contribution made by credit default swaps  to the financial crisis, most discussion has focused on the companies, such as American International Group, that posted big losses because they sold these instruments without sufficient due diligence.

    Another line of inquiry has not been pursued, however, though it is of equal, and perhaps greater, significance. That line of inquiry concerns the way in which the prices of credit default swaps effect the perceived value of all forms of debt — corporate bonds, commercial mortgages, home mortgages, and collateralized debt obligations — and as a result, the ability of hedge funds manipulators to use credit default swaps to enhance their bear raids on public companies.

    If short sellers can manipulate the price of credit default swaps, they can disrupt those companies whose debt is insured by the credit default swaps whose prices are manipulated.  The game plan runs as follows: find a company that relies on a layer of debt that is both permanent, and which rolls over frequently (most financial firms fit this description). Short sell that company’s stock. Then manipulate the price of the CDS upwards, preferably into a spike, as you spread the news of the skyrocketing CDS price (perhaps with the cooperation of compliant journalists at, say, CNBC).

    Because the CDS is, in essence, an insurance policy on the debt of the company, the spiking CDS pricing will cause the company’s lenders to panic and cut off access to credit. As this happens, the company’s stock will nosedive, thereby cutting off access to equity capital. Thus suddenly deprived of credit and equity, the firm collapses, and the hedge fund collects on its short bets.

    Moreover, credit default swap prices are the primary inputs for important indices (such as the CMBX and the ABX) measuring the movement of the overall market for commercial and home mortgages.  In the months leading up to the financial crisis of 2008, short sellers pointed to these indices in order to argue  that investment banks – most notably Bear Stearns and Lehman Brothers – had overvalued the mortgage debt and property on their books. Meanwhile, several hedge funds made billions in profits betting that those indexes would drop.

    It should therefore be a matter of some concern that credit default swap “prices” and the indexes derived from them are determined almost entirely by a little company with zero transparency and, it appears probable, a high exposure to influence from market manipulators. The company is called Markit Group, and there is every reason to believe that its CDS-driven indices (the CMBX, the ABX, and several others) are inaccurate, while the credit default swap “prices” that they publish  and which rock the market are in fact  nowhere close to the prices at which credit default swaps actually trade.

    Last year, the media reported that New York Attorney General Andrew Cuomo had sent subpoenas to Markit Group as part of an investigation into possible manipulation of credit default swap prices by short sellers. This investigation, like Mr. Cuomo’s other investigations into market manipulation, have yielded no prosecutions.

    The Department of Justice is reportedly investigating Markit Group for anti-trust violations. This investigation (which is reportedly focused on how Markit Group packages and sells its information) seems to acknowledge that Market Group has near-monopolistic control of information about credit default swap prices. However, if the press reports are correct, the DOJ has not considered the possible appeal of this monopolistic control to market manipulators.

    Meanwhile, Henry Hu, the director of the Securities and Exchange Commission’s division of risk, has said that it has been nearly impossible for the SEC to conduct investigations into any matter concerning credit default swaps because the commission does not have access to any data on the trading of CDSs. In itself, this is a shocking admission.  It is all the more shocking when one considers that the necessary data exists and might be in the hands of the Markit Group – a black box company based in London.

    A thorough investigation of Markit Group is urgently required.

    Here is what we know so far:

    • Markit Group was co-founded by Rony Grushka, Lance Uggla, and Kevin Gould. Prior to founding Markit Group, Mr. Grushka’s main line of business was investing in Bulgarian property developments. He recently resigned from the board of Orchid Developments Group, an Israeli-invested company based in Sophia, Bulgaria. Messrs. Uggla and Gould formerly worked for Toronto-Dominion Bank in Canada.
    • Markit Group’s founders also include four hedge funds. However, Markit Group refuses to disclose the names of those hedge funds. In response to an inquiry, a Markit Group spokesman said it was “corporate policy” to keep the names of the hedge funds secret, but he would not say why Markit Group had such a policy. It seems worth knowing whether those hedge funds have any influence over Markit Group’s published information or indexes, and whether those hedge funds are trading on that information. It would also be worth knowing whether those hedge funds or affiliated hedge funds have engaged in short selling of public companies whose debt and stock prices were profoundly affected by the information that Markit Group published.
    • Goldman Sachs, JP Morgan and several other investment banks also have ownership stakes in Markit Group. The investment banks received their stakes in exchange for providing trading data to Markit Group. It would be worth knowing whether these investment banks engaged in short selling ahead of Markit Group’s published indexes and price quotations.
    • Markit Group is secretive about how it creates its indexes. In early 2008, the Wall Street Journal noted that the CMBX simply “doesn’t make sense” and that Markit Group’s indexes “might be exaggerating the amount of distress” in the home and commercial mortgage markets. In 2008, the average prediction for defaults on commercial mortgages was 2%. The CMBX implied that the default rate could be four times that level.
    • When short seller David Einhorn initiated his famous public attack on Lehman Brothers, one of his central arguments was that the CMBX (the index that was likely “exaggerating the amount of distress”) proved that Lehman had overvalued the commercial mortgages on its books.
    • In March 2008, the Commercial Mortgage Securities Association sent a letter to Markit Group asking it disclose basic information about how the CMBX index is created and its daily trading volume. “The volatility in the CMBX index, caused by short sellers, distorts the true picture of the value of commercial-mortgage-backed securities,” the group said in a statement.
    • Markit Group is equally secretive about how it derives its “prices” for credit default swaps. A spokesman for the company spent close to one hour talking to Deep Capture. He did his job well and sounded like he was trying to be helpful. But he told us as little as possible.
    • However, in the course of this conversation, we did learn that Markit Group’s “prices” are not actual, traded prices. They are mere quotations. The Markit Group has what it calls “contributors” – hedge funds and broker-dealers that provide it with information. Markit Group has a grand total of 22 “contributors.” Deep Capture asked Markit Group’s spokesman for the names of these “contributors.” The spokesman said he would try to find out the names and call back later. He never called back.
    • The 22 “contributors” provide Markit Group with quotations, and these quotations become the Markit Group’s “price.” In other words, the “contributors” can quote any price for a CDS that they choose, regardless of whether anyone is actually willing to buy the CDS at that price. Markit Group looks at these quotations. Then it somehow decides which quotations make the most sense. Then it publishes information that purports to represent the actual market price of that CDS. This process is certainly unscientific. And it is ripe for abuse.
    • Consider, for example, the Markit Group “price” for CDSs insuring the debt of company X.  The Markit Group price strongly suggests that company X is going to default on its debt in the immediate future. Short sellers eagerly point to the Markit Group CDS “price” as evidence that company X is doomed. Panic ensues, and suddenly, company X really is doomed. But the fact is, nobody ever bought a company X CDS at the price quoted by Markit Group. Rather, that panic-inducing “price” was, in effect, pulled out of a hat. Who pulled it out of a hat? That is matter of immense importance. There are two possible scenarios:
    • The first possible scenario is that the 22 “contributors” report their quotations in good faith. They should be sending the actual traded price, not just a quotation, but assume they are just doing what was asked of them. From these quotations, Markit Group somehow decides what the “price” should be. It is possible that this decision is based on some secret formula (which would be worrisome); or it is possible that Markit Group executives sit around a table debating what the price should be and take a shot in the dark (which would be even more worrisome); or it is possible that Markit Group deliberately chooses the most horrifying price possible in order to assist the short sellers who are affiliated with its owners (which would be a matter for the authorities).
    • The second possible scenario is that Markit Group acts in good faith (if not scientifically), but one or more of the 22 “contributors” or their affiliates has an interest in seeing company X fail. If just one of those “contributors” sends in an astronomically high quotation, that could be enough. Markit Group factors the absurd quotation into its posted “price” and it suddenly becomes possible to convince the world that company X is about to default on its debt.  Panic ensues, the firm’s layer of debt dries up, the stock price plunges, and perhaps the “contributor” or its affiliate make a lot of money.
    • As Deep Capture understands it, CDS quotations suggested by the 22 “contributors” also help determine the movement of the CMBX and ABX indexes. The movement of these indexes did serious damage to the American economy in multiple ways. The  indexes prompted write downs at most of the major banks and mortgage companies. They were ammunition for short sellers, like David Einhorn, who claimed that companies had cooked their books by not writing down to the rock bottom prices suggested by the Markit Group indexes. They helped precipitate the decline in prices of mortgage securities, and contributed mightily to the panic that spread across the markets.  A lot of people made a lot of money as result of those indexes moving downward. So, it is rather important to know more about how those indexes are formulated, and if they can be driven by the same people who are making directional bets on their movements.

    Conclusion: Ten years ago, there was no such thing as a credit default swap. Six years ago, a very small number of investors traded credit default swaps as hedges against the long-shot possibility of corporate defaults. Nobody looked to credit default swaps as reliable indicators of corporate well-being.

    Then, suddenly, there were over $60 trillion in credit default swaps outstanding. That is, over the course of a few years, somebody had made over $60 trillion (many times the gross domestic product) in long shot bets that borrowers would default on their debt. As this derivative risk marbled through the system, the trading in credit default swaps was completely opaque. Nobody knew who bought them, who sold them, or at what price.

    But starting in 2001, we knew the “prices” of CDSs. We knew the “prices” because two Canadians, a developer of Bulgarian real estate, and four mysterious hedge funds had founded a small, black-box company in London. That company, the Markit Group, achieved near-monopolistic power to publicize the “prices” through its magic process of aggregating quotation information provided by 22 hedge funds and broker-dealers who could well have been betting on the downstream effects of sudden price changes.

    These “prices” were not prices in any meaningful sense of the term.  But, suddenly, these “prices” became perhaps the single most important indicator of corporate well-being. Assuming that those four hedge funds and the 22 “contributors” (or hedge funds affiliated with them) bet against public companies, it seems more than possible that short-sellers got to run the craps table, call the dice, and place bets, all at the same time.

    So perhaps it is not surprising that a lot of long-shot rolls paid off quite nicely.

    This post was written by:

    - who has written 87 posts on Deep Capture.


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    74 Responses to “The Markit Group: A Black-Box Company that Devastated Markets”

    1. Anonymous says:

      http://www.huffingtonpost.com/david-fiderer/the-moral-compass-missing_b_358856.html

      David FidererBanker/Writer
      Posted: November 16, 2009
      The Moral Compass Missing From The Greatest Trade Ever

    2. Anonymous says:

      Hasn’t Lazard Ltd come up a few times?

      http://www.bloomberg.com/apps/news?pid=20601087&sid=a5dd6ZrZWgHk&refer=home

      “Pellegrini, born in Milan, worked for investment bank Lazard Ltd. from 1986 to 1995, according to Paulson & Co. marketing materials. Like Paulson, he has a master’s degree in business administration from Harvard University.

      “I want to be the pilot of my own boat,” Pellegrini said when asked why he left Paulson & Co. “John Paulson is a very good friend. He doesn’t need any suggestions on how to run money. He knows how to do it.”

      To contact the reporters on this story: Tom Cahill at tcahill@bloomberg.net; Marco Langmann at mlangmann@bloomberg.net.

      Last Updated: January 6, 2009 10:49 EST

    3. Anonymous says:

      http://www.huffingtonpost.com/david-fiderer/the-moral-compass-missing_b_358856.html

      “Paulson and Pellegrini were eager to find ways to expand their wager against risky mortgages. Accumulating it in the market sometimes proved to be a slow process. So they made appointments with bankers at Bear Stearns, Deutsche Bank and Goldman Sachs, and other banks to ask if they would create CDOs that Paulson & Co. could essentially bet against.”

    4. Anonymous says:

      Lazard Ltd…Sound familiar?

      http://www.bloomberg.com/apps/news?pid=20601087&sid=a5dd6ZrZWgHk&refer=home

      Pellegrini, born in Milan, worked for investment bank Lazard Ltd. from 1986 to 1995, according to Paulson & Co. marketing materials. Like Paulson, he has a master’s degree in business administration from Harvard University.

      “I want to be the pilot of my own boat,” Pellegrini said when asked why he left Paulson & Co. “John Paulson is a very good friend. He doesn’t need any suggestions on how to run money. He knows how to do it.”

    5. harveywalbinger says:

      Thanks to Mark Mitchell & the DC staff for another fantastic piece of investigative journalism. Each time I read one of these my blood pressure spikes.

      I’m becoming convinced that all paper assets (or rather the electronic representations thereof) are for the most part all leveraged to the hilt in our rigged markets. Every day there is a new revelation of something ridiculously bad, and worse than the day before. Bonafide RICO upon RICO case, yet the perps continue to go about their business with impunity.

      Even if you think you’re holding a sound company that meets their sales/price/earnings targets makes a good product serves a thriving market, it’s likely to have a bazillion FTDs out there dragging the price down… just because they can. Why would anyone not privy to inside information ever want to invest in the illusion known as the stock market ?

      Gold is now $1140/oz & silver is now $18.50/oz. Is it any wonder ? People are catching on that tangible, physical assets can’t be leveraged & are fleeing to them. There is nowhere for the little man to invest/preserve wealth other than the procurement of physical assets.

      Note: GLD & SLV PM ETFs are not tangible assets, & as such CAN BE & probably are leveraged. Unless you can inspect for yourself, you can never really know.

    6. mhelburn says:

      Pam Martens did a report on the Markit Group last year.

      http://www.counterpunch.com/martens01212008.html

    7. Anonymous says:

      Post this for a high read rate to:

      wrh@whatreallyhappened.com

      He picked up naked short stories when I first started sending them, but I think I’m in his spam filter because the stories used to get picked up, but maybe they will get picked up if you send them in.

      http://whatreallyhappened.com/

    8. theTurtle says:

      Mr. Mitchell

      Bull’s-eye.

      theTurtle

    9. Anonymous says:

      Does the author have any connections with Bloomberg, the big, well connected player who would quite like to see Markit squashed?

    10. ron doc says:

      To see the overview of why this is just part of it read the section “How all systems can collapse overnight”, it is hard to read but essential information to grasp how all this intertwines because of common human evil in leaders who hold power for too long.

      http://webmail.att.net/wmc/en-US/v/wm/4B03DAF500005FFB00006D1F22216125569B0A02D29B9B0EBF9D0A04070A99050C010BD29D?cmd=Show&no=2380&uid=102349&sid=c0

      I still continue to say the onlt safe investment for the common man is in gold, silver, food and devices that can use those other PM’s, lead and copper to protect your hold of, and use of the former.

      We ran away from God and now he may be letting us go.

    11. iStandUp says:

      Goldman Sachs is apologizing the the World?

      Does this mean that NEW revelations are about to be revealed to the world about HOW Goldman Sachs and others Wall Streeters helped destroy the worlds economies?

      =====================================

      Goldman Sachs boss says sorry over financial crisis

      ‘We participated in things that were clearly wrong and have reason to regret,’ Lloyd Blankfein said. ‘We apologise.’

      guardian.co.uk, Wednesday 18 November 2009 11.10 GMT

      The head of Goldman Sachs has apologised for the Wall Street titan’s role in helping to create the financial crisis.

      After being ridiculed for saying he was doing God’s work, and having seen his company labelled as a bloodsucking vampire squid, Lloyd Blankfein yesterday delivered a mea culpa to a conference in New York.

      “We participated in things that were clearly wrong and have reason to regret,” Blankfein said. “We apologise.”

      As the world’s most successful investment bank, Goldman was involved in many of the practices that led to the credit crunch – such as the creation of “toxic” mortgage-backed securities.

      At the height of the crisis last year, Goldman took a $10bn (£6bn) capital injection from the US government, which it later repaid. Despite the economic downturn the company has been highly profitable this year, making $3bn in the last quarter. It has now set aside $16.7bn to pay staff bonuses, a figure that is expected to grow to $23bn by the end of the year.

      Goldman’s rapid recovery has generated anger around the world, at a time when millions of people have lost their jobs in the global downturn. On Monday around 100 people gathered outside its New York offices to demand that it hands over its huge bonuses to help struggling homeowners avoid foreclosure.

      “Who’s got the money, money? They got the money, money? We got the bill!” the crowd chanted.

      The pressure on Goldman intensified in July when Rolling Stone magazine published an in-depth feature on the bank, which concluded that it had been at the heart of a series of economic crises.

      “The world’s most powerful investment bank is a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money,” wrote Matt Taibbi.

      Faced with this criticism, Goldman announced yesterday that it is putting $500m aside to help 10,000 small US businesses. The donation (equal to 3% of its bonus pot) will be managed by a council led by Blankfein, Harvard Business School professor Michael Porter, and legendary investor Warren Buffett.

      Blankfein also admitted he regretted telling the Sunday Times that Goldman was simply doing “God’s work”, adding that he meant the comment as a joke.

      http://www.guardian.co.uk/business/2009/nov/18/goldman-sachs-blankfein-sorry

    12. mhelburn says:

      I tried to discuss the impending crash with my Congressman Mike Simpson some time ago. What I was telling him totally went over his head. His response was, “Talk to Cathy, she handles all our investments.” He seemed to be interested only in his personal situation and didn’t see his responsibility.

      Just as the OMM exemption was used to manipulate stocks, CDS was used to manipulate bonds. The only Congressional person who seems to get it and what needs to be done is Marcy Kaptur. She is calling for an investigation and going back 15 years to recover the stolen capital. The gutting of Glass-Steagall was critical to the whole scam. How do you prosecute something when it is not illegal? Our legislators sold us out for a token so that they could stay in power.

      The counties and funds who were defrauded by the various moneychangers trusted these people. The odds were that they would not make money on the transactions. The risks were not disclosed. Not all of the targets are taking this lying down. http://www.bloomberg.com/apps/news?pid=20601087&sid=aBMy4gnnFIk4&pos=7

      “The banks engaged in “allocating customers and markets for municipal derivatives, rigging the bidding process by which municipal bond issuers acquire municipal derivatives, and conspiring to manipulate the terms that issuers received,” according to the lawsuit.

      The charges against Rubin and the CDR employees were the first to result from a more than three-year investigation into bid-rigging in the municipal bond market. The probe is continuing and has already drawn in some two dozen banks, insurers and local government advisers.”

      It seems that we have been victimized by the same groups who in the last century used naked shorting, black pools, and interlocking directorates… they just have different names and the regulators created loopholes for them to pull off the same thing. The difference is that now pulling out of a depression is much harder as the capital has been moved offshore both in the forms of manufacturing and SPV’s, and self-insurance scams to avoid taxes. Meanwhile, the Fed is printing money and ruining the currency at an unprecedented rate.

      The stolen capital has been put in hard assets that were forced to low prices.

      The only way to get a correction is to clean out D.C. and the lobbyists who have been writing the bills.

      • harveydawabbitt says:

        mary i have bee trying to tell my senator too.
        it has been well over a year.
        maria cantwell just doesnt care.
        in fact no one here in washington states government does.
        i talked to them all.
        cant give up though.

    13. Anonymous says:

      ron doc,
      This is for you. Nothing is safe anymore.

      Gld ETF Warning, Tungsten Filled Fake Gold Bars

      http://www.bearmarketinvestments.com/gld-etf-warning-tungsten-filled-fake-gold-bars

      • dklester says:

        This is an interesting and alarming post. Many recognize that counterfeit stocks ruined the market. However, tungsten and gold do NOT have the same molecular weight (184 & 197 respectively=6% difference. The fact of molecular weight I can check…the rest I cannot check. Can you? It rings a horrible bell of familiarity, but it may not be true.

    14. Anonymous says:

      “Alan Greenspan, Chair of the Federal Reserve Board at the time, testified before Congress in favor of this legislation and asked that it be “expedited.” Last week, Mr. Greenspan joined the payroll of the hedge fund, Paulson & Company, which last year made $15 billion in profits betting that poor people’s homes would be foreclosed on while using the unregulated over-the-counter contracts that Mr. Greenspan assisted in making possible.”

      http://www.counterpunch.com/martens01212008.html

    15. iStandUp says:

      A “Dear Mr. Alan Greenspan” letter is needed!

      Alan Greenspan’s previously secret principal that FRAUD does NOT need to be regulated in the Banking industry and Wall Street industry is directly responsible for the crash in the world’s economies – in my opionion.

      Alan Greenspan not only owes the American people and the World’s people an apology for refusing to perform his duty as the chairman of the Federal Reserver, he also needs to RESIGN from his Hedge Fund job and spend the rest of his life helping the world’s governments create effective regulation of the Banking and Wall Street industries by revealing all his insider information about how bankers and wall streeters manipulate the world’s money supplies.

      To my mind, Mr. Alan Greenspan is demonstrating that he has little remorse, if any, for his refusal to regulate FRAUD on Wall Street and the Banking industry.

      Mark, maybe you or another DeepCapture.com would like to write a “Dear Mr. Alan Greenspan” letter to expose what should be criminal negligence, but is not, on his part.

    16. Sam says:

      Great wrok Mr. Mitchell. Lets hope it is not only seen by someone who can do something about it, but is capable of understanding it. I sent a letter to Senator Brown (D-OH)regarding S.B. 605. Got a non-commital form letter back showing no understanding of the issue. Referred to 605 as mainly an uptick bill.

    17. ron doc says:

      Anonymous, hope yo took the effort to read the Armstrong link, he writes this from jail as he is on a ememys list. I wou;ld never ever suggest anyone put a investment into GLD or any of the EFT’s for commodities as they are likely just tools of the crooks to control the prices and suck out investment money which would otherwise go into the actual metal or items.

      I am talking about having things, PM’s, food and the means of personal protection in your personal possession and control, somewhere you know and no one else but family can access if needed.

      You and others here may think I am just a nutbar but history proves many like myself in the past who turned out to not be quite so crazy when the stuff hit the fan. My point is no one except you is responsible for your own preperation for bad things coming. You do the best you can and hope for thew best.

      I will add that my personal hope is in God first and foremost but the Bible I get this from puts responability on the person forewarned to action along with faith. When Joseph got the word on seven years of fat followed by seven years of famine he and his people would have died with all the others if he had not acted on that news.

      I don’t know why but believe Patrick and crew are being used to warn in this part of the coming collapse and maybe if we all act and do what we can we wil be some of those prepared and come through.

      I may turn out to be a nutbar but plan on being as prepared a nutbar as I can be God willing.

    18. Jim Hall says:

      Einhorn now crying boohoo about how evil CDS are.

      Wonder if there is an investigation coming down and he’s trying a overt backpedal manuever?

      Could it be?

    19. Dr.Jim DeCosta says:

      As usual well done Mark. Warren Buffet warned us about derivatives being “weapons of mass financial destruction”. In the abusive short selling arena one has to remember that the “security entitlements” that are issued in conjunction with each legal pre-borrow, each FTD and each NSCC “Stock Borrow Program” (SBP) “borrow” to cure an FTD are “derivatives”. They’re not “shares” of a corporation.

      Every “derivative” allows access to “self-generated leverage”. After targeting a U.S. corporation for destruction a cabal of hedge funds and Wall Street insiders will work in concert to firstly legally short sell the corporation and thereby induce the issuance of tons of readily sellable share price depressing “security entitlements”. When the “supply” of legally borrowable shares runs low and rental rates go up (“hard to borrow” securities) cost conscious criminals merely shift over to abusive naked short selling which bypasses the need to make an expensive “borrow”. As all of these “security entitlements” build up in the share structure of the corporation targeted for destruction the share price has to tank.

      The key is to realize that “derivatives” by their nature come with them access to “self-generated leverage”. All you have to do is to target a U.S. corporation that happens to be an “easy prey” due to either development stage or other circumstances like Bear Stearns or Lehman Brothers and it’s pretty much game over.

      Allowing the method of placing the bet whether in abusive short selling or with credit default swaps to influence the outcome of the bet creates “rigged” markets. The ability to place bets on the derivatives of “shares” that damage the owners of the underlying “shares” and damages the corporation itself by outsiders with no economic interest in a corporation is insane but very lucrative to the casino insiders processing the bets and their hedge fund buddies placing the bets. But where would we on Main Street be without all of this wonderful “liquidity” being injected and these “market and pricing efficiencies” and hedging opportunities that short selling and credit default swaps provide?

    20. Dick Keane says:

      Stock Shock: The Short-Selling of the American Dream
      Decimal Place Trading caused the recession of 2008
      My name is Richard, and I am the narrator for the movie Stock Shock, directed by Sandra Mohr. The movie was made in June of 2009, just as the full-blown recession of 2008 was coming to an end. This recession was caused by the manipulation of stock prices on Wall Street through naked short-selling, flash trading, high-frequency trading, secret software, super-fast computers and what I feel was the main cause of this corruption: “Decimal Place Trading.” As I write this article today, much of this corruption is now slowly coming out through social media outlets such as Twitter and Facebook, along with bloggers on the internet, Yahoo bulletin boards, and, of course, Stock Shock. But the news media is also to blame for what has taken place in this country — including the near-collapse of Wall Street and the banking industry.
      There are many things to point fingers at or place the blame on, and I can think of a few off-hand that I would like to cover — the first being Wall Street’s regulation changes. I am no expert — I am not even a writer — but decided to tell this story since the business news media was not telling it. These Wall Street regulation changes contributed to the aforementioned problems in many ways, with the first being the removal of fractions in stock pricing. On January 29, 2001, the New York Stock Exchange, or NYSE, went to four-decimal-place trading. On March 12, 2001, the National Association of Securities Dealers Automated Quotation, or NASDAQ, followed suit. This new rule had the best of intentions as we headed toward the computer and digital world, but over time it was manipulated and companies like Goldman Sachs figured out how to take advantage of the new system. I am not sure how it happened, whether it was lobbied for years or what — but along came the biggest mistake of all with the elimination of the uptick rule in July of 2007. This rule had been implemented after the great depression, and had been in place since 1938. How could the Securities and Exchange Commission, or SEC, abolish a rule that had been in place for close to 70 years, and had worked? Put these two changes together, and you get a simple equation: greed plus corruption equals recession.
      Facts have also surfaced on this over the past few weeks on the internet — you can do a Google search and see for yourself. Also, reports have been released on the web that Goldman Sachs made over 100 million dollars per day in 46 out of 64 trading days in Fiscal Year 2009, second quarter (April, May and June). Let me say that again. They made over 100 million dollars per day, and are still doing it as I write this letter today. But the question remains, how did they do it? There has been no report of this by any of the news media. How can this be? This corruption is 100 times the gravity of the Bernie Madoff story, and yet there has been no coverage by CNBC or Bloomberg News. Why? Goldman Sachs, upon Wall Street transitioning to fractions and the abolishment of the uptick rule, designed secret software and used this software to gain an advantage on every potential investor. They did so by manipulating the stock price to make people pay more money by adjusting the stock price up and down in decimal places, making profits on each and every trade, while these investors had no idea what was taking place. Basically, Goldman Sachs became a Las Vegas poker dealer in New York City on Wall Street, turning profits on every trade with their super-fast computers and software. Profits in the milliseconds works out to be over $100 million per day. Now that’s a lot of trades — and it is still going on today.
      Stock Shock has revealed many of these scams, yet they have only been reported by social media networks like Twitter and Yahoo, along with some great bloggers and websites, such as satwaves.com. The national media, meanwhile, has turned a blind eye. I have discussed with Stock Shock’s director that the bigger crime here — aside from the essentially stolen 20 to 60 percent of people’s retirement money and individual investments — is the action of the news media — or shall I say, their non-action.
      The movie has gotten the attention of Senator Ted Kaufman and Senator Chuck Schumer, which has subsequently lead to new SEC rules for flash trading — effective September 1, 2009 –and more discussions on reinstating the uptick rule by year’s end.
      Here is my take on why the news media has been silent. Stock Shock is about the technology of the future; namely Sirius XM Radio — a satellite radio service. The news media is fearful of the success of this company as future technology expands to cell phones. Basically, when Apple came out with the iPhone in July of 2008, Sirius XM Radio and XM Radio merged companies — also in July of 2008. It was the start of the “walking computers” via cell phones with increased functionality that will only improve and expand in time as they upgrade and bring the news to the people instantly. As I write this letter, it hits me. The Federal Communications Commission, or FCC, delayed the merger of Sirius and XM for 18 months — six months prior to uptick rule elimination in January of 2007. Was the abolishment of the uptick rule established at this time because of these new technologies merging, which would eventually create the new news media years down the road? With people using these cell phones — which contain a multitude of media capabilities — to videotape news as well as to link videos to YouTube and link photos, could this be the reason why all of a sudden the uptick rule was abolished? And what followed right after — the most shorted stock on Wall Street — was Sirius XM Radio. Not only was Goldman Sachs using its advantages to take investors’ money away slowly like Las Vegas poker dealers — Goldman Sachs was also paying millions to CNBC. Was it paid protection to keep quiet? The news media wanted this powerful, newly-merged company, called Sirius XM Radio, Inc., destroyed. To that end, both the news media and the corrupt individuals on Wall Street ganged up on Sirius XM Radio in an attempt to bankrupt the company through negative and, at times false, news media reporting — all while Goldman Sachs naked-shorted Sirius XM Radio’s stock in the millions of shares.
      Thanks to the movie Stock Shock and Sirius XM Radio’s faithful investors, they fought back and today, the truth is slowly coming out each and every day — what the news media is still doing and how Goldman Sachs is still manipulating trades in decimal places. But Sirius XM Radio has survived the onslaught of attacks in the press and on Wall Street, not to mention CNBC’s non-reporting of the many positive stories that have unfolded with Sirius XM Radio since the release of Stock Shock.
      In the end, the truth will prevail over the business news, CNBC, and Goldman Sachs. We will expose their role in the failed attempt to bankrupt Sirius XM Radio through Hollywood. There are four movies being released on this topic:
      1. Stock Shock: The Short-Selling of the American Dream — Director Sandra Mohr
      2. Money Never Sleeps — Director Oliver Stone
      3. Capitalism: A Love Story — Director Michael Moore
      4. Monopoly — Director Ridley Scott
      Go figure. Wow, the times have changed. But Hollywood will tell the truth about how the recession of 2008 took place, since the business news failed to tell the American people and investors of the world about the corruption on Wall Street involving decimal place trading and manipulation. They failed to tell the world because both had their own hidden agendas — as the news media wanted Sirius XM Radio bankrupt, and Wall Street wanted the Sirius investors’ money.

      Now, for some facts about the news media…
      CNBC:
      Did you know that General Electric, or GE, owns CNBC, as well as NBC and MSNBC? Did you know that MS stands for Microsoft, as GE and Microsoft own MSNBC? They also own Meet the Press, The Today Show and others.
      CNN:
      Did you know that CNN is owned by AOL/Time Warner and that they own 33 magazines, including Time and Fortune?
      FOX:
      Rupert Murdoch owns News Corp, which owns Fox News and their many networks across the country. News Corp also owns 132 newspapers, including the New York Post and the London Times, along with 25 different magazines.
      Also, it seems ironic that these newspapers are in trouble financially, as has been reported over the past months — especially the Boston Globe’s problems and how the New York Times owns this well-known but, of late, troubled publication. I do not know who owns the Wall Street Journal, Motley Fools, but I do know that Jim Cramer of CNBC’s “Mad Money” is part-owner of thestreet.com, which has written numerous false articles about Sirius XM Radio. How is he allowed to do that while also bashing Sirius XM Radio on “Mad Money“? Did you see Jim Cramer bashing Sirius XM Radio last night ( August 24th, 2009 ) on Mad Money.
      How could any one of these once powerful news media companies fail to cover the story of naked short-selling or decimal place trading? The recent news about naked short-selling and flash trading, along with high-frequency trading, have only been in the news since word came out on Wall Street about Stock Shock. Only then have these stories of corruption on Wall Street come out within the past few weeks and months, but to this day there has still been no talk of the decimal place trading — and the national news media have yet to mention the movie. All of these news media companies and TV stations are hoping that Goldman Sachs can still succeed at trying to bankrupt Sirius XM Radio through manipulation in decimal places; hence not one single word of this on any one of the networks listed above — not one word. But the Cash for Clunkers program has been all over the news for the past month — who do you think will benefit from all of the new cars sold? Yes…Sirius XM Radio will be included in just about every new car sold, not to mention in all of the cell phones of the future. CNBC had at least 100 hours of coverage for the Cash for Clunkers program, yet not one mention of Sirius XM Radio — the company that, ironically, stands to gain the most for all these new car sales.
      Goldman Sachs’ manipulation of stock prices with Sirius XM Radio and many other stocks continues today. Goldman Sachs tried to ruin the banking industry using the same exact means — naked short-selling — until the SEC finally stepped in. Their original plan back in July of 2007 to ruin Sirius XM Radio led to more greed by Goldman Sachs and Wall Street as they took the Sirius XM Radio attack plan and used it against the banking industry, while their greed almost ruined our great country. When they are making over 100 million dollars per day by manipulating stock prices in decimal places, I guess they will do anything, and stop at nothing — including putting this country into a recession. That, my friends, is greed — total and complete greed.
      Goldman Sachs’ advantage will be diminished with the new changes coming on Wall Street, but which national media company is going to tell the entire truth to the world? Is it going to be Hollywood, or is the national media finally going to be forced to reveal what really happened?
      The bottom line is this: the truth will prevail in the end, and Stock Shock will unveil the whole story — the real story — to the world. You can take that to the bank.

      Richard Keane, narrator – Stock Shock
      August 16, 2009 original
      August 25th, 2009 revised version

      • drmark2006 says:

        Dick,

        It’s kind-of surprising that you don’t know that Rupert Murdoch’s News Corporation owns the Wall Street Journal.

        WSJ was the flagship publication of Dow Jones & Co., which News Corp. took over in an all-cash buyout. (DJ also published Barron’s, and the various stock-indices under the Dow Jones brand name.) The deal was announced in April 2007 & closed in mid-December 2007. It had something to do with the extended family descended from the founders of Dow Jones having gotten into an internal squabble over who/whether to keep majority-ownership control of the firm.

        Both the family squabbling and the Murdoch bid were very widely reported at the time. One aspect of the reportage was concern about how the WSJ might change or deteriorate once Murdoch took over. He has a decades-long reputation for editorial interference and the basest of tabloid style, after all.

    21. Dr.Jim DeCosta says:

      Mark described how easy it is to use “derivatives as a weapon” by attacking a corporation that relies on constantly rolling over its debt. You short sell it to death, manipulate the price of the credit default swaps upwards and make the company either pay a fortune for its next round of debt issuance or make it unavailable since it is perceived as a lousy credit risk.

      How do you use “derivatives as a weapon” to attack development stage corporations which don’t issue debt and therefore have no credit default swaps available to manipulate? Instead of using the derivative known as a “CDS” you use the derivative known as a “security entitlement” which are issued during each and every legitimate pre-borrow associated with a legitimate short sale, each and every FTD and each and every NSCC SBP “borrow” effected to “cure” an FTD.

      As these pile up in the share structure of the corporation targeted for an attack the share price is manipulated downwards and as the share price drops the non-cash flow positive corporation that needs to constantly go to the market to sell shares to service its monthly “burn rate” needs to sell that many more shares per month just to pay the monthly bills. Finding willing buyers is going to be more difficult due to the loss in credibility associated with such a low share price that’s constantly trending lower. Thus when this corporation sells shares it will have to do so at a greater discount to its current share price due to the perceived risk associated with investing in corporations whose share price in in the midst of a “death spiral”. Notice the commonality of PERCEIVED RISK and SELF-GENERATED LEVERAGE in both modes of attacks.

      I think it’s time to classify abusive short selling crimes as a subset of a greater family of crimes involving USING DERIVATIVES AS A WEAPON. What factors are in common in these two ways (CDS’s and “security entitlements”) to use derivatives as a weapon:

      1) The target needs to constantly either roll over its debt like a bank does or constantly has to go to the market to sell shares to pay the bills like a non-cash flow positive development stage issuer does.
      2) Since short selling is involved in both a healthy supply of shares being held in “street name” is important. The securities fraudsters want to have easy access to the NSCC SBP’s “self-replenishing” lending pool of securities. This way the same parcel of impossible to identify shares can be simultaneously loaned out to perhaps a dozen different co-conspirators.
      3) The perception needs to be created that the corporation is not credit worthy so that a smaller universe of lenders or financiers will be willing to participate and if they do they’ll demand more favorable terms.
      4) A source of “self-generated leverage” can be accessed which results in the ability to drive the share price down aggressively by redeploying the funds stolen from investors as the share price drops in order to be able to collateralize that much larger of a naked short position.
      5) There needs to be a centralized location able to operate in secrecy to coordinate matters. In the case of the derivatives known as “security entitlements” clearly this is the DTCC and in the case of CDS’s “Markit” seems to fill the bill.

      I challenge you to find a more clever form of fraud than that associated with using derivatives as a weapon.

    22. peter says:

      Almost like some guys know something and have been gaming the system and raping the peons for nefarious purposes yet to be revealed.

      Would like to know the personal realtionships of the top few hundred players.

    23. Anonymous says:

      “The Markit Group: A Black-Box Company that Devastated Markets” this statement is based on pure ingnorance.
      Markit is one of the most trasparent company in the market

    24. Anonymous says:

      harvey,
      I am not baghead from above but these companies appear in article above. Hope this helps !!!

      http://www.counterpunch.com/martens01212008.html

      “The official story goes like this: Mark-it Partners needed big broker dealers to submit daily price data. As an incentive, it offered 13 large security dealers options to buy shares in the company providing they would be regular providers of pricing data: ABN AMRO, Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Dresdner Kleinwort Wasserstein, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, TD Securities, UBS. By 2004, according to an archived company press release, all of the companies had kicked in capital. The Financial Times would later report that these banks and brokerage firms held a majority interest of approximately 67%, hedge funds owned 13%, and employees 20%. The firm’s web site currently says it has 16 banks as shareholders, without naming the banks.
      Deutsche Bank, Goldman Sachs and JPMorgan were reportedly the first three firms to take an equity stake in Mark-it on or around August 29, 2003 when the three firms sold a proprietary database of credit derivative information to Mark-it. Since Mark-it is a private firm, financial terms have not been disclosed.
      What would have been the incentive for three big Wall Street players to build a proprietary database and then, in a magnanimous gesture completely uncharacteristic of Wall Street greed, hand it over to be shared with their largest competitors?”

      • Anonymous says:

        Excellent comment. It would seem that these mysterious contributors that escaped Mark Mitchell could be found by a simple Google search. Anyone thinking Mark Mitchell is involved in “investigative journalism” doesn’t understand investigation or journalism.

        • harveywalbinger says:

          From the article above…

          “…The Markit Group has what it calls “contributors” – hedge funds and broker-dealers that provide it with information. Markit Group has a grand total of 22 “contributors.” Deep Capture asked Markit Group’s spokesman for the names of these “contributors.” The spokesman said he would try to find out the names and call back later. He never called back.
          The 22 “contributors” provide Markit Group with quotations, and these quotations become the Markit Group’s “price.” In other words, the “contributors” can quote any price for a CDS that they choose, regardless of whether anyone is actually willing to buy the CDS at that price. Markit Group looks at these quotations. Then it somehow decides which quotations make the most sense. Then it publishes information that purports to represent the actual market price of that CDS. This process is certainly unscientific. And it is ripe for abuse.”

          The companies referenced in the fine piece of investigative journalism: ABN AMRO, Bank of America, Citigroup, Credit Suisse, Deutsche Bank, Dresdner Kleinwort Wasserstein, Goldman Sachs, JPMorgan, Lehman Brothers, Merrill Lynch, Morgan Stanley, TD Securities, & UBS, are probably but not necessarily among the contributors. All that was said is that they are shareholders, because it seems Markit declined to comment. In the name of transparency I’m sure.

    25. chaser says:

      From what I’ve read etc. on this site it seems everything runs through the DTCC, meaning majority of fraud and illegal selling must attempt to flow through its annals. If so, and CDS’s were a main manipulation hedge for a niche market, wouldn’t it be a bad thing to create a corporation for the sole use, or trade, of CDS’s within the DTCC? Wouldn’t the markit index become subject to perhaps an easier route for illegal shorting to occur? One wonders…

    26. Anonymous says:

      The writer got so many things factually wrong I can scarcely credit his claim to have done any real investigation. The things he got wrong would have been easy to get right, by using Google or looking at the company website for example. He didn’t need to wait for some junior PR guy who “did not return his call” (read: got buried by work and forgot). The numbers of investors and contributors is ludicrously far off the mark – there are more than twice the number of contributors than he quotes, and this number is public information. He even got wrong the initial investors and when they invested, which was *years* after the founding of the company – again, information which is public and easy to find. Markit’s methods for arriving at their indices are on their website, and these methods are overseen by independent third party committees. I also object to the way this writer tried to make them sound sinister – “a small, black box company in London” – let’s unpack that shall we? Markit has 1300 employees. Not as big as some financial data companies maybe, but I wouldn’t call that small. Black box? The only black box is around the writer’s head, given his wilful ignorance of public information. You can’t claim a company is trying to hide something just because you refuse to read what’s out there. These guys are not the Illuminati. Markit is one of the good guys. It was founded in part because the market needed greater transparency in pricing, not because it wanted less. Fiscally they run a tight ship, in contrast to some of the stories we have heard about profligate spending in the financial world. They have always kept their salaries and bonuses at the lower end of the scale and linked to performance, instead giving employees the chance to buy stock in the company, which is kind of the way people want the whole city to be handling their compensation right now. They have always had really high employee retention, even when the economy was good. On business trips they fly economy. The whole culture is about staying lean, being fiscally responsible and competitive. Most of the original founders are still with the company – it hasn’t become some faceless corporate machine. Finally, I noticed this article was edited after it was first posted – the original version had remarks about “two Canadians and a property investor” with a sneering tone – the remarks, in my opinion, smacked of American chauvinism – this company must be bad because it isn’t American, and it’s in a foreign sounding place called London. How ignorant can you be? Ignorant enough to put nutso accusations on the internet without any evidence in support I guess. What is the animus behind this piece? Whatever it is, it ain’t the search for truth.

    27. Anonymous says:

      anonomous, You said: “Whatever it is, it ain’t the search for truth.”

      You elude to being from London ? Please tell me how long Londoner’s have become southernized and used the word “ain’t” ?

      • Anonymous says:

        I don’t think I alluded to being from London. Generally I don’t think Londoners do use the term ain’t, except with irony or to emphasise a point. The finance world is very diverse and international however, and there is a great deal of cross pollination, in ideas and in language.

    28. Anonymous says:

      Anonomous,

      Don’t think many AMERICAN’s would make this comment or feel this way:
      “the remarks, in my opinion, smacked of American chauvinism – this company must be bad because it isn’t American”

      Not too many people I know from London or the northeast USA in the states use the term ain’t. Thats a true southerner expression. What part of the south are you from? Southerner in London…Nice !!!

      • Anonymous says:

        Sorry, not sure what you are driving at. You think I am an not an American, but maybe an American from the South (of the US) living in London and being disloyal to America? Or are you accusing me of being British and using a word which, although not copyrighted, you have some proprietary feelings about? Either way you are not being very coherent. If you have something to say about the article, as opposed to my use of the word “ain’t,” I’d be happy to hear it.

    29. Anonymous says:

      Let the SUNSHINE IN and the PROSECUTIONS BEGIN !!!!

    30. ron says:

      In the world of liquid financial markets every thing is related. The uptick in the CDS levels has an impact on the price of the underlying securities involved which impact the valuation of related securities and stock prices and option prices. If you have insider information and you take a position in a CDS you have not comitted an infraction according to the best legal minds I have consulted. They are not securities and they are not regulated IF CDS prices spike however stock prices fall this you can bank on. The CDS mkt is the canary in the mine that the traders watch to make their bets.

    31. g2nosis says:

      Excellent work, Mr. Mitchell. Thank you.

    32. Bill says:

      First, let me say that I am a trader who sometimes trades CDS. I realize many people will stop reading right now or give no credit to anything I say. I will concede that an argument can be made that CDS can be used to artificially manipulate markets. I don’t agree, and I don’t think anyone has made a compelling argument that it has happened, but a plausible argument can be made.

      Second, Lehman (or any other company that has failed during this crisis) was not brought down by short sellers of stock or buyers of CDS. It failed because it was insolvent and the government did not step in to save them. The same thing would have happened to many other banks if the government hadn’t subsequently stepped in to throw trillions of dollars at the problem with direct capital infusions, debt guarantees, zero interest rates, and purchases of assets at inflated prices. If the remaining banks survive, it absolutely will not prove that Lehman was brought down in some insidious manner.

      Lastly, my real problem with this article is laying any of this blame at the feet of Markit. Markit is a data aggregator. Markit could not possibly cause a selloff or crash by publishing erroneous prices. If I want to know where Citi CDS is trading, I don’t call Markit; I call one of the 10-20 dealers who actually make markets in that CDS. Anyone who is actually in a position to influence the price of any the securities in a significant way would do the same.

      On a somewhat unrelated note, the notional size of the CDS market (50-60 trillion) is a scary number but is not especially meaningful. A huge amount of risk is effectively counted multiple times. If I’m a dealer and I buy 10mm of protection for one person and sell 10mm to another, that adds 20mm to the total outstanding notional. But there is really only 10mm worth of risk created (aside for counterparty risk which is another problem). Multiply this over tens of thousands of trades, and the amount of risk is probably overstated by at least an order of magnitude.

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