“The Matrix is the world that has been pulled over your eyes, to blind you from the truth.”
- Morpheus to Neo, The Matrix
It is the mission of DeepCapture to show you, dear reader, that the financial world you inhabit, a world vouched-for in dulcet Midwestern tones by actor-spokesmen you recognize and trust, a world inhabited by honest brokers looking after your money, brokers who interact through self-regulating exchanges overseen by diligent regulators, themselves overseen by elected politicians looking out for their constituents, themselves challenged by an adversarial free press maintaining a critical posture towards it all, is in fact a “world that has been pulled over your eyes, to blind you from the truth.” It doesn’t exist: it is a socially constructed reality designed to keep you complacent as you feed your savings to the machine.
And I can prove it. For that matter, so can you, right now, from your computer. To explain how, I must continue with reference to The Matrix.
There is a point in the movie where Neo and his comrades are walking up a staircase. Neo glimpses a black cat that disappears then reappears:
In this essay I will explain a glitch that is available for you to verify right now, from your computer. I do not know how long it will remain after I write this, but it has existed for many months, and cannot be fixed without causing other problems for those seeking to keep you deluded. I will take you through three steps, and then you will be able to test this theory from your computer, and see a glitch that should not exist.
*****
STEP #1 OF 3: UNDERSTAND WIKIPEDIA
Wikipedia is a social media encyclopedia. That is to say, it is the work of thousands of people collaborating across the Internet to write millions of articles on every subject one would expect to find in an encyclopedia, and many more. People are free to edit other peoples’ words, adding their own knowledge to the sum. The constitutional principles of Wikipedia demand that such edits and additions be written from a “Neutral Point of View”. Every article is backed up by a discussion page, where the people who are working on that article can meet and work out their differences in an atmosphere where good faith is assumed. Ultimately, differences which are not so resolved are put to community vote. In sum, Wikipedia is socially constructed reality.
Wikipedia has drawn its detractors (myself among them) across many fronts. One thing that both supporters and detractors agree on, however, is the remarkable speed with which Wikipedia is updated to reflect the world around us. When any significant event happens, the appropriate page is updated within minutes, or even within seconds, by someone. Be it a public statement of a treasury official, the passing of a celebrity, or a car bomb going off on a street in Beirut, the appropriate Wikipedia pages are updated before the story has finished scrolling across the wire.
*****
STEP #2 OF 3: SCROLL THOUGH THE HEADLINES OF (OR READ) THESE 21 ARTICLES (a-u) CONCERNING NAKED SHORT SELLING AND THE GLOBAL FINANCIAL IMPLOSION
a) July 12, 2006 Speech by SEC Chairman: Opening Statements at the Commission Open Meeting by Chairman Christopher Cox
Second Item – Proposed Amendments to Regulation SHO
The next item on our agenda is the serious problem of abusive naked short sales, which can be used as a tool to drive down a company’s stock price to the detriment of all of its investors. The Commission is particularly concerned about persistent failures to deliver in the market for some securities that may be due to loopholes in the Commission’s Regulation SHO, adopted just two years ago.
At the Commission’s request, the Division of Market Regulation has prepared proposed changes in Rule 203 under Regulation SHO to cut down on failures to deliver.
The need for Regulation SHO grew out of long-standing and growing problems with failures to deliver stock by the end of the standard three day settlement period for trades, some of which were symptoms of abusive “naked” short selling. Selling short without having stock available for delivery, and intentionally failing to deliver stock within the standard three-day settlement period, is market manipulation that is clearly violative of the federal securities laws…
A grandfather provision, however, gave an exception from Rule 203(b)’s mandatory close out provision for any fail to deliver positions established before a security became a threshold security. And another provision of Rule 203(b) – the options market maker provision – provides an exception for any fail to deliver positions in a threshold security if they result from short sales by an options market maker, for the purpose of establishing or maintaining a hedge on options positions created before the underlying security became a threshold security.
We are particularly concerned about the potential negative effect that substantial and persistent fails to deliver may be having on the market in some securities. Specifically, these fails to deliver can deprive shareholders of the benefits of ownership – voting, lending, and dividends from issuers. Moreover, they can be indicative of abusive naked short selling, which could be used as a tool to drive down a company’s stock price. They may also undermine the confidence of investors who may believe that the fails to deliver are evidence of manipulative naked short selling in the stock. In turn, issuers may be harmed, as investors may be reluctant to commit capital to a stock that they believe is subject to abusive naked short selling.
To address these concerns, the Division of Market Regulation is recommending proposals to amend Regulation SHO. The recommended proposals are based on examinations conducted by the Commission’s staff and the SROs since Regulation SHO became effective in January 2005. While preliminary data indicates that Regulation SHO appears to be significantly reducing fails to deliver without disruption to the markets, there continues to be a number of threshold securities with substantial and persistent fail-to-deliver positions that are not being closed-out under existing delivery and settlement guidelines. It appears these persistent fails are primarily attributable to the grandfather and options market maker exceptions to the delivery requirements of Regulation SHO.
The proposals being recommended today would eliminate the grandfather provision, and narrow the options market maker exception. The proposals would include a limited one-time phase-in period following the effective date of the amendment. The proposals also include a technical amendment that would update the market decline limitation referenced in the rule. In combination, these proposals are intended to eliminate the persistent fails to deliver that are attributable to loopholes in Regulation SHO as originally adopted…
*****
b) March 4, 2008 – Reuters: “SEC proposes tougher “naked” short selling rules“
WASHINGTON, March 4 (Reuters) – The U.S. Securities and Exchange Commission on Tuesday proposed tougher rules to curb so-called “naked” short-selling abuses and prevent market price manipulation.
SEC Chairman Christopher Cox said regulation SHO, an existing rule partly aimed at short selling abuses, “needs teeth.”
Short sellers borrow shares they consider overvalued and sell them. If the price drops, they repurchase the shares, return them and pocket the difference. In a naked short sale, the investor sells stock that has not yet been borrowed.
The three-member SEC voted unanimously to propose the rule, which targets sellers who intentionally deceive broker-dealers or purchasers about their ability to meet delivery deadlines.
Sellers sometimes deliberately fail to deliver securities as part of a scheme to manipulate the stock price.
*****
c) March 5, 2008 – Wall Street Journal: “SEC Proposes Teeth for Short-Selling Rules“ by Judy Burns
WASHINGTON — Securities regulators voted 3-0 to propose a rule intended to crack down on lingering abuses involving so-called naked short sales and failures to deliver shares that have been used in such sales.
The proposal is part of a continuing attack by the Securities and Exchange Commission on short-sales abuses, an effort begun four years ago with the adoption of rules known as Regulation SHO.
Separately, the SEC voted to propose changes that could speed the introduction of exchange-traded funds, without review by federal regulators. (Please see related article.)
Short selling involves sales of borrowed shares, producing profits when prices decline, allowing the short seller to replace borrowed shares at a lower price.
In contrast, “naked” short sellers don’t borrow shares before engaging in short selling, and they may have no intention of borrowing them.
Regulation SHO sought to curb such practices by requiring short sellers to locate shares for borrowing before engaging in short sales, but it did not include any new mechanism to enforce the requirement.
Under the proposal, the SEC would create an antifraud rule targeting those who knowingly deceive brokers about having located securities before engaging in short sales, and who fail to deliver the securities by the delivery date.
SEC Chairman Christopher Cox said the proposal would bring needed teeth to Regulation SHO and address concerns about short-selling abuses, particularly in the market for small-cap stocks. “Reg SHO can’t be effective without enforcement,” Mr. Cox said.
Even with the regulation in place, the SEC received hundreds of complaints last year about alleged abuses involving short sales. While most trades settle within three days, as required, the SEC estimates about 1% of shares that change hands daily, or about $1 billion, are subject to delivery failures.
The SEC’s move last year to close off a “grandfather” exception to Regulation SHO, has done little to reduce longstanding delivery failures, according to preliminary data analyzed by SEC staff.
The SEC has yet to announce its plans for a separate pending proposal to scale back or eliminate an exemption for options market-makers.
Brokers who engage in short selling for customers would not face any new obligations under the proposed antifraud rule, and the SEC said it wouldn’t apply to market makers engaging in market-making activities.
Although the SEC already has authority to sue illegal short sellers, SEC officials said a new rule explicitly targeted to naked short sales might affect behavior. SEC Commissioners Paul Atkins and Kathleen Casey expressed support for the crackdown on abusive sales but said they want to be sure it doesn’t result in unintended consequences, such as driving legitimate short sales offshore.
*****
d) July 15, 2008 – Bloomberg: “SEC to Limit Short Sales of Fannie, Freddie, Brokers” By Jesse Westbrook and David Scheer
The U.S. Securities and Exchange Commission will limit the ability of traders to bet on a drop in shares of brokerage firms, Freddie Mac and Fannie Mae as part of a crackdown on stock manipulation, the agency’s chairman said.
Christopher Cox told the Senate Banking Committee that the agency will require traders to hold shares of the two mortgage buyers and the brokerages before they execute a short sale. The emergency order, to be in effect for 30 days, will bar the practice called naked short selling, in which traders avoid the financial cost of borrowing shares when betting they’ll fall.
Cox said the SEC will draft rules “to address the same issues across the entire market.”
Hedge-fund manager William Ackman, who oversees $6 billion at Pershing Square Capital Management, is among those betting that shares of Fannie Mae and Freddie Mac will fall. There’s no indication he is engaging in naked short selling, in which traders never borrow shares from their broker or deliver the stock to buyers.
The SEC has been reluctant to curb short selling “because it would require a major retooling of the plumbing of Wall Street,” said James Angel, a finance professor at Georgetown University studying short sales. “It’s only when the big Wall Street firms are threatened that the SEC does something about it.”
Trading Abuses
The SEC is investigating whether trading abuses contributed to the collapse of Bear Stearns Cos. in March and the 78 percent drop in the market value of larger rival Lehman Brothers Holdings Inc. this year. Fannie Mae and Freddie Mac have each lost about 80 percent of their value amid speculation the mortgage-market crisis may push the firms into insolvency.
Short-sellers, who borrow shares betting that they’ll decline, are spreading rumors about Lehman in an organized attempt to depress the stock, according to Richard Bove, bank analyst at Ladenburg Thalmann & Co. in Lutz, Florida.
“As with Bear Stearns, Lehman has been targeted by the fear-trade,” said Fox-Pitt Kelton Cochran Caronia Waller analyst David Trone in a report yesterday. Lehman should go private so it can avoid the attacks by short-sellers, he said.
Freddie Mac, down as much as 34 percent today before Cox’s comments, erased some of the decline and fell $1.49, or 21 percent, to $5.62 at 2:34 p.m. in New York Stock Exchange composite trading. Fannie Mae shares rebounded from a 30 percent drop and were down 18 percent.
Opposition
“I don’t think the government should ban short-selling in anything as long as it’s fully disclosed, as long as there’s no manipulation,” MFS Investment Management Chairman Robert Pozen said in an interview with Bloomberg News yesterday. “Don’t we want the market to work here?”
John Nester, an SEC spokesman, said the emergency order will “require any person effecting a short sale in the listed securities to borrow the securities before the short sale is effected and deliver the securities on settlement date.”
In traditional short selling, traders borrow stock through a broker and hope to profit by selling shares high and later buying them back at lower prices to repay the loan.
Naked short selling isn’t necessarily illegal, unless authorities can prove fraud, such as a scheme to manipulate stock prices.
*****
e) July 18, 2008 – Op-ed for the Investor’s Business Daily: “Public Statement by SEC Chairman Christopher Cox ‘Naked Short Selling Is One Problem a Slumping Market Shouldn’t Have‘”
The demise of IndyMac, coming on the heels of Bear Stearns’ desperate sale to JPMorgan Chase, is a sure sign of the fragility of today’s markets. What’s needed now, more than ever, is reliable information for investors and confidence that trading can be conducted without the illegal influence of manipulation.
Because financial institutions depend on confidence, they are uniquely vulnerable in the current climate. A “run on the bank” can take hold quickly, and can be fatal. But stampedes are not always rational.
When an irrational panic is fueled by a sense of urgency, false rumors that must be acted on immediately and the fear that everyone else may get out first, market integrity is threatened. It is the job of market cops to provide a measure of confidence that financial information about public companies is accurate and reliable — and when it is not, to punish those responsible.
Who profits from intentionally false information in the marketplace? Those who are in on the scam and positioned to benefit from the predictable response of others who believe the fraudulent information to be true.
The classic “pump and dump” scheme, in which a stock is inflated through false information and then dumped on unsuspecting investors when the perpetrators flee, is one example of how this works. “Distort and short” is the same thing in reverse.
Naked short selling can turbocharge these “distort and short” schemes. In a naked short, the usual process of short selling is circumvented, because the seller doesn’t actually borrow the stock and simply fails to deliver it. For this reason, naked shorting can occur even when actual shares aren’t available in the market. It allows manipulators to force prices down without regard to supply and demand.
Next week, the SEC will implement an emergency order designed to prevent naked short selling in the financial firms that the Federal Reserve Board has designated as eligible for access to its liquidity facilities.
Because these are large firms with substantial public float, honest short sellers can readily locate shares to make good on their short positions. Continued legitimate short selling in these issues will act, as it is supposed to, as a way for market participants to invest in the downside and to hedge other positions.
At the same time, eliminating the prospect of naked short selling will help assure investors that it is safe for them to participate, and that the current declining market is not the product of unseen manipulators and “distort and short” artists.
Our emergency order is not a response to unbridled naked short selling in financial issues — so far, that has not occurred — but rather it is intended as a preventative step to help restore market confidence at a time when it is sorely needed.
Many people think naked short selling is already illegal, but that isn’t true. Shares are normally delivered to the buyers within three days of the trade. But in most stocks, including those covered by our emergency order, that three-day period can be extended indefinitely.
Even without these extensions, and even when a short seller locates shares that can be borrowed, there can be problems because the short seller is not currently required to actually borrow those shares until settlement.
As a result, securities lenders can tell multiple short sellers they can borrow the same shares of stock — a sure recipe for a failure to deliver. Once the commission’s order takes effect, this possibility will no longer exist.
The SEC is committed to maintaining orderly securities markets. The abusive practice of naked short selling is far different from ordinary short selling, which is a healthy and necessary part of a free market.
Our agency’s rules are highly supportive of short selling, which can help quickly transmit price signals in response to negative information or prospects for a company. Short selling helps prevent “irrational exuberance” and bubbles.
But when someone fails to borrow and deliver the securities needed to make good on a short position, after failing even to determine that they can be borrowed, that is not contributing to an orderly market — it is undermining it. And in the context of a potential “distort and short” campaign aimed at an otherwise sound financial institution, this kind of manipulative activity can have drastic consequences.
It was famously — perhaps too famously — said that “markets will fluctuate.” That is certainly true if they are well-functioning. As market referee, the SEC neither can nor should direct the market’s fluctuations. Instead, our most basic role is to ensure a continued flow of liquidity to the markets from participants who are confident the game isn’t rigged against them.
Naked short selling can undermine the market’s integrity. For the financial sector in this crisis, certainly, but as soon as possible for the entire market, this is one worry investors shouldn’t have.
*****
f) July 29 – Bloomberg: “SEC Extends Naked Short-Sale Order on Fannie, Freddie” David Scheer and Edgar Ortega
The U.S. Securities and Exchange Commission extended an emergency limit on short sales in shares of Freddie Mac, Fannie Mae and 17 brokerages as it prepares broader rules to thwart stock manipulation.
The SEC pushed back expiration of its ban on so-called naked short sales of the firms’ stocks from today through Aug. 12, the Washington-based agency said in a statement. The order aims to keep traders from driving down financial stocks to boost profits after Bear Stearns Cos. and IndyMac Bancorp Inc. collapsed amid rumors they were faltering.
The emergency order, focused on companies whose collapse might expose the U.S. government to losses, gives regulators time to weigh wider restrictions. SEC Chairman Christopher Cox last week told lawmakers the agency is examining other proposals, such applying the ban on naked short sales to the broader market.
“It definitely appears that the SEC is interested in making adjustments to short-sale regulations,” said John Standerfer, vice president for financial services at S3 Matching Technologies, the Austin, Texas-based trade processor.
In traditional short selling, traders borrow shares and sell them. If the price drops, they profit by re-buying the stock, repaying the loan and pocketing the difference.
Naked short sellers don’t borrow shares before settling sales. The SEC is concerned manipulative investors may use the sales, legal under some conditions, to drive down prices by flooding the market with orders to sell shares they don’t have.
Arrange to Borrow
The temporary order, which took effect July 21, requires traders to at least arrange to borrow shares before selling short Freddie Mac and Fannie Mae, the government-sponsored mortgage buyers. The order covers brokerages with access to the Federal Reserve’s discount window, which was opened to investment banks after the March collapse of Bear Stearns.
Market makers have an exception under the SEC order that permits them to sell short to maintain liquidity. Investors, such as hedge funds, previously could start trades without an agreement to acquire shares.
Short sales, particularly among retail investors, plummeted after the SEC announced the ban, according to data from S3 Matching Technologies, which processes trades for three of the top five retail brokerages. The sales fell 78 percent on average among the companies named in the order, compared with trades on July 14, the day before the SEC announced the measure, S3 data shows. The company handles about 15 billion transactions daily.
`Pretty Restrictive’
“I see no reason that will turn around,” said Standerfer in an interview yesterday. “It seems like a pretty restrictive rule to put in place for the entire market.’
Cox last week told Congress the agency may also force investors to disclose “substantial” bets on falling stocks and or reinstate a version of the so-called uptick rule, which barred short sales of stocks when prices are falling.
The uptick rule, implemented after the Great Depression and scrapped last year, allowed short sales only if a preceding trade boosted the stock price. The SEC is studying whether increasing the uptick increment, such as to a nickel or dime, might be more effective, he said.
*****
g) August 2, 2008 – The Salt Lake Tribune: “Naked shorting’s early critic starts to see some vindication: Byrne’s Battle Helps Bring Curbs on Naked Short-Selling Practices“. By Steven Oberbeck
Over the past several years, Patrick Byrne’s campaign to clean up Wall Street and end a practice that has destroyed companies and cost unwary investors billions of dollars generated plenty of publicity for him, mostly the wrong kind. Critics labeled him nuts, a conspiracy theorist, a complete wack job. Byrne, the chief executive of the Utah-based discount online retailer Overstock.com, even found himself tagged a member of the “tin-foil hat” brigade, a reference to the flying saucer fanatics of the 1950s who adorned their heads with aluminium to ward off, or enhance, thoughts from aliens in outer space. These days, when people talk of Byrne, the word ‘vindication’ comes up a lot. ‘You can always tell who the pioneers are — they’re the ones with all the arrows sticking out of their backs,’ said James Angel, a finance professor at Georgetown University. ‘You really can’t understate what Byrne has accomplished.’
*****
h) August 13, 2008 USA Today: “Financial stocks suffer after protection ends” By Matt Krant
The SEC’s emergency curb on short selling of 19 major financial services firms stocks expired before Wednesday trading, leaving investors to wonder if the measure helped protect the strained system.
Since July 21, the SEC rule banned “naked” short sales on those 19 stocks. Short sellers hope to profit by selling borrowed shares and replacing them at lower prices. In naked short sales, traders don’t actually borrow the shares; that can intensify the downward pressure on a stock.
The rule’s expiration appeared to have some effect Wednesday as financial stocks suffered sizable losses. That could mean short sellers have been at least partly behind big drops in shares of some financial companies.
“There has to be some sort of correlation between the moratorium ending and these stocks being down,” says Eric Fitzwater, analyst at research firm SNL Financial.
Perhaps more telling: The day the Securities and Exchange Commission announced the rule, July 15, was the day financial stocks bottomed for 2008. “If (the SEC) wanted to protect these companies artificially, it served its purpose,” Fitzwater says.
*****
i) August 17, 2008 The Economist: “Searching for the naked truth“
The real problem with abusive short-selling
“It is impossible to know how big this problem is, but regulators accept it exists. The American Stock Exchange fined two market-makers for precisely this violation in July 2007. A month later the SEC proposed limiting or eliminating the exemption, but momentum stalled in the face of opposition from banks and exchanges. The anti-short lobby, emboldened by the July ban, is again pushing for an end to the market-makers’ exemption. …. How much does all this matter? Deliberate naked shorting has no place in a well-run market…”
*****
j) September 16, 2008 Associated Press: “Naked short-selling blamed in Wall St crisis“
WASHINGTON – With Wall Street engulfed in crisis, the Securities and Exchange Commission is planning measures to rein in aggressive forms of short-selling that were blamed in part for the demise of Lehman Brothers and which some fear could be turned against other vulnerable companies. During emergency meetings between federal officials and investment bank executives over the weekend, SEC Chairman Christopher Cox indicated to the bankers that the agency plans in a few days to impose new permanent protections against abusive ‘naked’ short-selling, a person familiar with the matter said Monday….
*****
k) September 21, 2008 Associated Press: “Dutch ban ‘naked’ short selling for 3 months“
The Dutch Finance Minister is banning “naked” short selling of financial stocks for the next three months to increase the stability of financial markets….
*****
l) October 28, 2008 Wall Street Journal: “Japan Cracks Down on Naked Short Selling” By Takashi Nakamichi and Ayai Tomisawa
TOKYO — Japan moved Tuesday imposed new restrictions on so-called “naked” short selling of stocks, stepping up its efforts to arrest the tumble in domestic share prices.
The Tokyo Stock Exchange has asked member brokers to stop accepting naked short-sell orders, TSE President Atsushi Saito told a news conference.
The TSE’s move followed comments from Finance Minister Shoichi Nakagawa, who said that regulations on naked short selling would be tightened. Mr. Nakagawa didn’t say that the practice would be banned, but the TSE’s move and local media’s interpretation of his comments suggested that the new strictures, to be enforced from today, will be a ban in all but name.
Short-sellers typically borrow stocks and then sell them on, profiting from the fall in price when they buy back the securities. Naked shorting removes the need to first borrow the stock, which means that larger volumes of shares can be dumped on the market. Short-selling generally has drawn fire from regulators across the world, who say it has contributed to the sharp market declines of recent months.
The Japanese government had planned to ban naked short selling from Nov. 4, but the recent plunge in local share prices has caused the new rule to be introduced a week ahead of schedule. The Nikkei 225 Stock Average closed at a 26-year low on Monday, as investor sentiment was battered by the global financial crisis, the rising yen and concerns about an international economic slowdown.
Traders said the naked short-selling ban was one reason for a big recovery in Japanese shares Tuesday.
The ban “was one of the positive factors behind the Nikkei’s gains (in the afternoon), but I don’t think it’s the main catalyst,” said Yukio Takahashi, market analyst at Shinko Securities. The Nikkei ended 6.4% higher Tuesday, erasing most of Monday’s sharp slide, due mainly to the yen’s weakening and firmness in major Asian stock markets, traders said. (See related article.)
The naked shorting ban comes as the government mulls a series of measures to improve confidence in Japan’s financial sector. Among other steps, the government wants to raise the cap on possible injections of taxpayers’ money into domestic banks from ¥2 trillion ($21.37 billion), ease fair-value accounting rules, loosen capital adequacy requirements for banks and enlarge tax breaks for stock investors.
At Tuesday’s news conference, Mr. Nakagawa highlighted the urgency of the task at hand. “I’ve discussed with Prime Minister [Taro Aso] the fact that the coming few days will be very important and that we must take steps immediately,” he said. “Our assessment is that the coming several days will be very important — and therefore dangerous — for the Japanese stock markets.”
Mr. Nakagawa also said the government will immediately open investigations into possible illegal practices linked with naked short selling. The Financial Services Agency, the Securities and Exchange Surveillance Commission and the TSE will work together in looking into past records on such sales practices, he said. “If we find out any violation of the law,” Mr. Nakagawa said, “we will retroactively deal with it strictly.”
*****
m) November 14, 2008 “Australia bans naked short-selling“
CANBERRA: Australia moved to slap a permanent ban on the most controversial form of short-selling yesterday amid an historic fall in share prices, part of a crackdown that is also targeting hedge funds and credit rating agencies.
*****
n) November 20, 2008 – CNBC: Interview with Former SEC Chairman Harvey Pitt:
Interviewer: Let’s talk shorts. Harvey Pitt is former SEC chairman and founder and CEO of Kalorama Partners. Harvey, great to have you with us….Chairman Pitt, do we need to bring back the Uptick Rule? Would that make a difference here at all?
Harvey Pitt: I don’t believe so. The Uptick Rule was almost non-existence in terms of its detrimental affects. There’s a very simple solution and the SEC has it and they know what is. It’s very simply this. If you want to sell a stock short you have to have a legally and forcible right to produce that stock on settlement day. That’s all it takes. If the SEC does that people will not be able to sell short unless they have actually first located and gotten their stock.
Interviewer2: In other words that would do away with naked shorting right?
Harvey Pitt: Absolutely, and naked shorting is what’s causing a lot of the problems in the market.
Interviewer2: Because nobody is forced to deliver. Nobody must deliver. Too much of that going on.
Harvey Pitt: That’s been the real problem. People in affect are just gambling. They’re assuming the stock price will go down. They then spread false rumors to help the stock go down, but they have no skin in the game because they haven’t committed to produce the shares that they purportedly are selling.
*****
o) November 21, 2008 – The Financial Times: “Regulators to discuss short selling rules” By Joanna Chung in New York
Global securities regulators will gather on Monday to discuss rules on short selling and disclosure of credit derivatives, the head of the US Securities and Exchange Commission said on Thursday.
Christopher Cox, SEC chairman, said the meeting, to be held via teleconference, would address “urgent regulatory issues in the ongoing credit crisis.”
The announcement came during yet another tumultuous day of trading in global stock markets.
“In addressing turbulent market conditions, it is essential not only that regulators act against securities law violations, including abusive short selling, but also that there be close coordination among international markets to avoid regulatory gaps and unintended consequences,” Mr Cox said in a statement on Thursday.
The International Organization of Securities Commissions, which includes securities regulators from around the globe, will consider the effectiveness of their recent actions to reduce abusive short selling, without hurting legitimate shorting…
Mr Cox said regulators will explore “possible coordination” on rules relating to naked short sales – when shares are sold without being borrowed first– in particular with regard to position reporting and delivery and pre-borrowing requirements.
*****
p) November 24, 2008 Reuters “Global regulators focus on abusive short selling”
WASHINGTON, Nov 24 (Reuters) – Global securities regulators launched three task forces to study abusive short selling, unregulated financial products and unregulated financial entities such as hedge funds, the U.S. Securities and Exchange Commission said on Monday.
“The working groups were established amid volatile market conditions and designed to support work of the world’s 20 largest economies, which have already agreed to step up oversight of the troubled financial system. “One group will focus on aligning global regulators’ approach to naked short selling, the SEC said.””
*****
q) December 1, 2008 – EuroMoney: “US equity market – Fails to deliver: The naked truth“
Fails to deliver in the US equity market have exacerbated the sharp declines in share prices of financials.
IT IS NO surprise that the stock of Bear Stearns was heavily shorted in the run-up to its government-supported rescue in March, given its high leverage, poor risk management and the fact that its sub-prime bets had gone awry. Short-selling of any financial company would have been understandable by March this year. But just why on March 12, two days before the rescue announcement, almost 1.25 million Bear Stearns shares were shorted is a question that is a little harder to answer.
Up to that point in 2008, cumulative fails to deliver of Bear Stearns’ stock were only between 10,000 and 200,000 on any given day. On March 14, more than 2 million Bear Stearns shares went undelivered, and from then until the end of March, failures increased, peaking one day at more than 13.78 million shares. At the same time, from March 12 to the announcement on Friday March 14, Bear Stearns’ share price crashed from $61.68 to $30, dropping to $4.81 the following Monday.
That the precipitous drop in Bear Stearns’ share price coincided with fails to deliver has forced the market to properly address a long-standing question: are fails to deliver responsible for rapid share price deterioration? Had those failures been averted through better regulation would Bear Stearns have had a slower downfall, or even avoided outright collapse? And what of Lehman Brothers, Fannie Mae and Freddie Mac? Indeed, would all financial companies have enjoyed more resilient share prices, instead of seeing sudden, sharp price declines that were the final nudge to creditors and counterparties abandoning firms and driving them into bankruptcy?
The SEC has since attempted to bring a halt to naked short-selling, which gives rise to fails to deliver, but are its efforts sufficient?
Formal investigations are taking place to look into abusive short-selling of the stocks of both Bear Stearns and Lehman Brothers.
Robert Shapiro, former economic adviser to Bill Clinton, chairman of Sonecon and an adviser to the presidential transition team of Barack Obama, believes there is sufficient evidence that naked shorting accelerated the collapse of Bear Stearns. He says: “Bear Stearns failed because it went bankrupt. However, the pace of the collapse of the stock price was clearly accelerated by the enormous naked short-sale activity. There perhaps could have been a more orderly bankruptcy which would have preserved more of the assets.”
John Welborn, an economist with investment firm the Haverford Group, agrees. “Fails to deliver added to the downfall of Lehman Brothers and Bear Stearns but were not, obviously, the whole story. Fails in Lehman Brothers were never significant enough to drastically alter the tradable float. In Bear Stearns, however, a torrent of fails began on March 12, before the public knew most of the bad news. The important thing to note here is that T+3 settlement essentially allows people to sell an infinite amount of any stock either to precipitate a bear raid or to capitalize on one already in progress.”
Welborn continues: “A bear raid encourages panic selling by long holders. Once enough long holders are induced to sell, then there are plenty of shares available to cover any naked positions ex post. When the long holders have sold their positions and the naked short sellers have covered at a lower price, then the issuer faces a dramatically depressed market. That may make it difficult (or impossible) to recapitalize, especially if that issuer is in the financial sector.”
Naked short-selling can be a confusing topic. A short-seller can only sell short if it can locate a source from which to borrow that security and therefore ensure delivery to the buyer – within the T+3 requirement. In most circumstances it is up to the prime broker to confirm whether it is possible to locate the stock and agree the transaction. If it is not possible to locate a stock, which can happen when certain stocks become illiquid, the trade is not allowed to take place. Market makers are an exception to this rule, and are able to lend stock without having located a source from which to borrow, in order to keep the markets liquid. This type of “naked shorting” is legal. If the source of stock is not a market maker, selling of a stock without having located a stock to deliver is illegal. Illegal, however, means very little when no enforcement penalties are in place.
Up until the end of this summer – not till September did the SEC enforce a crackdown – shorting without locating a source from which to borrow has suffered no penalty in the US, and brokers’ statements about efforts to locate them might be rather vague. “A broker can say he has located a stock, but that’s it,” says a hedge fund manager. “What if five other brokers are looking at that same stock and telling their clients they have located it. Who will get it?”
And if there is no penalty for failing to locate and failing to deliver, then why not just fail to deliver? In equity markets if a short-seller does not deliver, he can simply wait until the stock price deteriorates sufficiently so that he will never have to deliver, and therefore is able to keep the money from his sale. Do short sellers, be they hedge funds or proprietary trading desks, do this often? No. But can they do it? Yes. And were some doing this during the peak of the financial crisis? Absolutely.
One former employee of regulator NASD says he knows of a hedge fund that was shorting Freddie Mac and Fannie Mae on a “massive scale”, with no intention of ever locating stock. “His prime broker let the trade go through regardless as he was a large client of theirs,” he says.
Illegal naked shorting, at its worst, can be implemented to bring a company down. In the present crisis of confidence among financial institutions, it can also simply be a means of jumping on a losing target. If a financial institution’s stock looked as if it was falling, why not short-sell without promising a buy-in within three days and hope that the fall is sufficiently large beyond three days to make an even bigger profit?
A glance at the fails to deliver in the financials market indicates that some investors applied this strategy. A comparison of the average daily reported shares failing to deliver between the first quarter of 2007 and the first quarter of 2008 for the US’s top financial firms showed a clear increase over the period. The data, compiled by Washington publication IA Watch, showed a 335% increase for Freddie Mac, a 226% increase for Citigroup, a 133% increase for Goldman Sachs, a 632% increase for Morgan Stanley and a 1,123% increase for Bear Stearns. One source even suggests that some market participants never intended to buy-in and simply marked their tickets “long” selling shares that they did not even own as they knew they would never have to make delivery.
Fails to deliver: Unheard voices
Fails to deliver in the US stock markets are not a new phenomenon. In response to an increasing number of fails, the SEC introduced Regulation SHO in January 2004. This required that a daily list be compiled of all securities that had more than 10,000 fails to deliver, or more than 0.5% of issued shares failing to deliver for five consecutive days or more. No penalty was introduced to deter fails but it was believed that publication of the list would act as a deterrent. The majority of the stocks on the list were those of small firms on the Pink Sheets or Bulletin Boards and many were regarded as companies with weak business models that were likely to see fails to deliver, as levels of shorting in the stock would be high.
For years, small companies affected, and larger companies such as Overstock.com (which has market capitalization of $500 million) have appealed to the SEC to prevent fails to deliver, claiming that their stock prices have suffered as a result of the practice. In April 2004, in a series of articles, Euromoney warned about the implications for larger household names if fails to deliver were not properly addressed. Shapiro agrees that larger companies are now being targeted. He says: “Ordinarily this doesn’t happen to large institutions with large stock floats but in a panic situation they become vulnerable along with those companies that are always vulnerable – smaller companies that are without large public floats. In a time of panic, mechanisms that allow the markets to overshoot (naked shorts) mean you can drive a stock into the ground.”
Patrick Byrne, chief executive of Overstock.com, continues to lobby against fails but insists it is not a matter of self-interest. “The argument gets reduced to me being upset that stock in my firm might be being shorted. That was never the argument. Shorting has its place, I know. This has always been about why the government is ignoring the loopholes within the settlement system that are allowing for fails to deliver to occur.”
He is certain, as are several other long-standing lobbyists, that the recorded number of fails to deliver is only a fraction of the true amount. “If two broker/dealers clear through the DTCC, and one fails, then the two brokers can turn that failure into a private contract to be dealt with outside the DTCC and it becomes ‘ex-clearing’. After that there is no register of that fail,” says Byrne. If failures are as frequent as suggested, the idea of broker/dealers preferring to cancel out each other’s fails on a private basis is not beyond the realms of possibility.
Wes Christian is partner in a law firm representing 15 companies that allege that their stock price has been driven down by illegal naked shorting and fails to deliver. “We are aware of these deals being ex-cleared and of the failings of Reg SHO. Allowing failures to deliver creates artificial supply and that drives down prices,” he says. The defendants in Christian’s clients’ cases are the majority of broker/dealers on Wall Street.
Fails to deliver in the equity markets are seen to create artificial supply. If a stock can be sold without having to be borrowed, there is a strong possibility that stocks in excess of those issued are being sold. Indeed, several companies, Overstock.com included, have reported instances of more owners of stock than is possible. On March 14 128% of Bear Stearns stock outstanding was traded. These “phantom shares” can be on-lent without delivery again and again, further diluting the stock.
It’s a situation specific to the US markets, say participants. Patrick Georg at Clearstream Luxembourg says there has been no decline in settlement efficiency in Europe. Alan Cameron, head of clearing, settlement and custody client solutions at BNP Paribas Securities Services in London, says he has seen little to indicate similar instances of fails to deliver in Europe. “Some European countries like Spain impose strict fines on failures to deliver, as does Crest. It’s not an issue here in Europe.” Byrne adds that in Europe, the impact on reputation of failing to deliver is a deterrent. A head of a prime brokerage in the UK agrees: “It just does not happen in Europe. Securities get delivered in a timely fashion or business is lost.”
However, settlement is faster in Europe than in the US. It is surprising that the US still operates a T+3 system. Robert Greifeld, chef executive of Nasdaq, questioned the system in March this year at a conference when, in reference to fails to deliver, he said it was hard to believe that in 2008 the market still required three days to settle, and that a T+1 system should be part of a discussion about fails.
The SEC has pussyfooted around enforcing delivery in the US equity market over the past 10 years or so, but the collapse of financials stocks has pushed it to be stricter. On September 17, SEC chairman Christopher Cox announced several actions to “make it crystal clear that the SEC has zero tolerance for abusive naked short-selling.” From that date, fails to deliver beyond T+3 have been subject to a hard close-out. If stocks fail to deliver beyond T+3, the broker/dealers acting on the short-seller’s behalf are prohibited from further short sales in that security unless stocks are pre-borrowed.
This change of tack upsets those such as Byrne who have been fighting to have their voices heard for years. “When companies that had access to the Fed window became victims of fails to deliver, the SEC then had to sit up and take notice,” says Byrne.
Actions taken against naked shorting: Small steps
Since August, the number of companies with stock on the Reg SHO list has fallen from an all-time high of 650 to an all-time low of 90, although this does not take into account ex-clearing data. Shapiro says it is a step in the right direction. “The actions taken are an acknowledgement of the issues regarding naked shorting and fails to deliver at least. Progress is under way. Given there are many issues facing the SEC at the moment, this is encouraging.”
Others, however, are disappointed that more has not been done. Byrne says: “A hard close-out is not nearly enough. To truly stop failures to deliver, the SEC must enforce a pre-borrow where parties have to guarantee that a locate has been found through a contract.” At present, broker/dealers and short-sellers can say they have located a source of stock when several other parties might have also identified the same source. Peter Chepucavage of the International Association of Small Broker/Dealers and Advisers agrees that an initial pre-borrow rule is crucial in preventing fails to deliver. “The industry is resisting an initial pre-borrow rule but it is essential,” he says. “Without it the stock market is like the airline industry. You’re overselling the airplane seats knowing that someone will not be able to board even though they reserved/located, to avoid decrementing their inventory.”
The argument against pre-borrows is that liquidity will dry up, and that shorting will be deterred. However, Greg DePetris at Quadriserv believes the opposite would occur as lending would increase. “A more efficient settlement process should result from recent regulatory changes, and these tighter inventory controls might create new trading opportunities,” he says. “It’s important for anyone in possession of lendable supply to monetize its value, and traditionally that’s been done through the lending spread and reinvestment of cash. The notion of pre-borrows implies that there may be derivative value in the latent supply of securities, which lenders may be able to realize for their clients.”
Welborn says the SEC knows it has to introduce the pre-borrow rule if it wants to eliminate fails to deliver for good. “As long as there are companies on the Reg SHO list, then the problem has not been solved,” he says. “The only sustainable solution to naked short-selling is a rule requiring both a pre-borrow and a hard delivery. With only one of these pieces in place, the system is still open to abuse. For example, a hard-delivery requirement by itself would not have made an iota of difference for Bear Stearns; only a pre-borrow could have put a brake on the naked short-selling.”
Welborn points out that the SEC did precisely this in July when it ordered emergency pre-borrows for Fannie Mae, Freddie Mac and the 17 primary dealers. “The SEC knows what must be done to fix this problem once and for all,” he says.
*****
r) December 9 – Reuters: “SEC urged to do more to curb naked short selling” By Rachelle Younglai
WASHINGTON, Dec 9 (Reuters) – U.S. securities regulators need to do more to crack down on abusive naked short selling — a type of trading blamed for contributing to the free-fall in financial stocks — former and current regulators said on Tuesday. Amid volatile market conditions, the Securities and Exchange Commission adopted a number of rules to rein in those who profit illegally from stock declines. Making bearish bets on stocks is a legitimate investment strategy but the SEC’s rules are designed to weed out abusive practices, such as investors’ failure to deliver stock by settlement date. Short sellers arrange to borrow shares they consider overvalued in hopes of repaying the loan for less and profiting from the difference. A naked short sale occurs when an investor sells stock that has not yet been borrowed, which can distort markets.
Former SEC Chairman Harvey Pitt praised the SEC for taking constructive steps but said the agency has not done enough.
“Naked shorting is a situation in which someone is gambling but they have no skin in the game. They are not required to make any effort to deliver the shares,” said Pitt, one of the panelists speaking at a “Coalition Against Market Manipulation” event in Washington.
The SEC tightened up its rules this year and required short sellers to deliver securities three trading days after shorting the stock.
Rex Staples, general counsel for an association of state securities administrators, said the states are trying to eliminate the problem, but said “this seems to be a solution that the commission is best-equipped to solve.”
“States are ready to act, but we are throwing our support behind the federal regulator at this point,” said Staples, general counsel for the North American Securities Administrators Association.
Pitt and other panelists said the SEC needed to do more to eliminate ambiguity in its rules.
For example, investors are required to locate shares before shorting them. However, SEC rules require broker dealers to have “reasonable grounds” to believe that the security can be borrowed so that it can be delivered by settlement date. Critics say the language is vague.
“If you want to sell short any security, you should have a legally enforceable right to deliver stock on day of settlement. It’s unambiguous, it doesn’t leave any wiggle room,” said Pitt.
*****
s) December 9, 2008 – Wall Street Journal: “SEC Urged To Step Up Attack On Short-Sale Abuses” By Judith Burns
WASHINGTON — U.S. securities regulators need to do more to curb short-selling abuses, a group of academics, business executives and former top regulators said Tuesday.
The Securities and Exchange Commission should close loopholes and enforce current rules against “naked” short selling, said Harvey Pitt, former SEC chairman and now chief executive of Kalorama Partners, a Washington, D.C., consulting firm.
“The agency has to make it clear that naked short selling in any form is prohibited,” Mr. Pitt said at a midday press conference.
Short sellers aim to profit by borrowing shares for sale and replacing them later at a lower price. “Naked” short sellers don’t borrow shares they sell short, which can pummel stocks and facilitate market manipulation.
The SEC has sought to crack down on short-selling abuses in recent years, most recently with an interim rule requiring short sellers to deliver borrowed shares within three days of trade settlement. Mr. Pitt and others urged the SEC to make the requirement permanent and take other steps to stiffen pre-borrowing requirements, provide better tracking of stock-delivery failures, including those outside stock-clearing systems, and force buy-ins when delivery failures occur.
*****
t) December 9, 2008 - MarketWatch: “Obama adviser: Short selling must be disclosed” By Ronald D. Oral
Ambiguous rules limiting naked short selling must be clarified, attorneys say
WASHINGTON (MarketWatch) — A top adviser to President-elect Barack Obama on securities regulation on Tuesday said he wants the Securities and Exchange Commission to require public disclosure of short selling.
“We’re looking for disclosure of positions, with a small delay, after a short sale is made,” said Roel Campos, a former Democratic SEC commissioner and member of Obama’s transition team.
After the precipitous drop in stocks of major investment and some commercial banks including Citigroup Inc. in September, the agency implemented a series of short sell rules, many of which were temporary in nature. Among these, the SEC temporarily banned short sales in roughly 800 financial institutions. That ban expired on October 8.
Regulators and others argued that many short sellers — who make bets that a stock price will decline — contributed heavily to the financial crisis and the collapse of many financial institutions.
The next agency chairman is expected to grapple with whether the agency is doing enough to chill manipulative short selling of shares, particularly when it comes to financial institutions.
Campos is seeking to have the next SEC chairman introduce new rules requiring short sellers to publicly disclose their positions in a manner that is similar to how equity investors are required to reveal their equity stakes.
For example, to comply with the SEC’s 13F rule, investors with $100 million in capital or more are required to publicly disclose their positions 45 days after every calendar quarter. Equity investors with 5% or greater stakes are also required to disclose that information to the agency in either an activist Schedule 13D or passive Schedule 13G filing.
But Campos argues that four-times-a-year public disclosure of short sell positions isn’t enough. He wants to see a requirement that hedge funds and other short sellers disclose their positions publicly more quickly after stakes are made, perhaps as fast as two weeks after each position is taken.
Among the temporary regulations put into place in the fall is a requirement for confidential weekly disclosure of short positions to the agency.
According to the rule, investors with $100 million or more in capital must disclose on a weekly basis to the agency their short positions. However, these investors only must provide that position information to the agency on a confidential basis. The expiration date for the provision was extended in October to Aug. 1 of 2009.
Short seller critics argue that public disclosure will mean their proprietary strategies will be disclosed, enabling rivals to copy their approach. Campos said the delay in public disclosure is intended to protect some proprietary strategies, but that there should be some parity with equity disclosure requirements.
Other ways to rein in short selling
In addition to disclosure, securities attorneys and academics discussed other mechanisms that the SEC could impose that could reign in short selling at an event hosted by the Coalition Against Market Manipulation in Washington.
Participants argued that the agency needs stronger rules limiting illegal naked short selling, the practice of selling shares without arranging to borrow the securities up-front.
The SEC in September adopted rules requiring short sellers and their broker dealers to deliver securities within three days of a trade. Participating investors who fail to arrange to borrow shares in advance are prohibited from making future short sales in the same securities.
But securities attorneys at the event argued that there are too many qualifiers on the naked short selling rule.
Rex Staples, general counsel for the North American Securities Administrator’s Association Inc., said there is a “reasonable” qualification on the delivery requirement. “To the extent you can qualify a word like reasonable, you are going to get that time after time,” said Rex Staples, general counsel for the North American Securities Administrator’s Association Inc.
Former SEC chairman Harvey Pitt, who participated in the discussion agreed that the SEC should eliminate ambiguity when it comes to the agency’s naked short selling provision. The agency should also take steps to enforce the rules.
“The agency must make it extremely clear that any naked short selling is illegal and it has to remove the ambiguities so the rules are very clear,” Pitt said.
Participants also debated bringing back the so-called up-tick rule, a regulation removed last year that allowed short sales only if a preceding trade boosted a company’s stock price.
Georgetown Finance professor James Angel said he wants to see an up-tick rule that would take effect when a stock has fallen 5%. He also sought additional prohibitions when a stock price falls 10% and 15%. Staples argued that the SEC should bring back the same up-tick rule it eliminated in 2007. “It is very helpful in times of financial turmoil,” Staples said.
*****
u) March 19, 2009 (Bloomberg): Naked Short Sales Hint Fraud in Bringing Down Lehman” By Gary Matsumoto
The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.
As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.
The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.
“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’”
*****
In addition to these articles, please note that naked short selling has been implicated in the hobbling of the US financial system by The American Bankers’ Association (1 2), the US Chamber of Commerce (1 2 3 ), the CEOs of Goldman Sachs, Morgan Stanley, JP Morgan, and Lehman, politicians John McCain, Hillary Clinton, Barack Obama, Ron Paul and numerous other congressional representatives, the Chairman of the SEC, the Secretary of the Treasury, and so on and so forth.
*****
STEP #3 OF 3: THE CURRENT WIKIPEDIA PAGE ON NAKED SHORT SELLING OMITS EVERYTHING YOU JUST READ, AND YOU ARE FORBIDDEN FROM FIXING IT
At “the encyclopedia that anyone can edit” it is as forbidden to add information such as that contained in the preceding articles as it would be to sell Adam Smith’s works on the streets of Pyongyang. Instead, right at this second, the Wikipedia page on Naked Short Selling sticks to a thoroughly-discredited two-year out-of-date Party Line that holds that experts think naked short selling is not a problem (or even exists) and the mass media agrees with the experts. Much of the page is written in gibberish apparently intended to make it more difficult for a lay person to confront (which is unusual for Wikipedia). And unique among the millions of Wikipedia articles, it cannot be fixed or updated to reflect any of the information cited exhaustively above.
That’s right. Notwithstanding thousands of articles such as the ones cited above, the current Wikipedia article on naked short selling insists that experts believe that it is not a problem. No mention is made of hearings, statements by economists and SEC Chairmen, emergency federal actions and emergency meetings of regulators from the G-20 to stop the world financial system from implding, etc.
Instead, the tone is set by this quote:
“While concern expressed by the regulator has been echoed by journalists, some commentators contend that naked short selling is not harmful and that its prevalence has been exaggerated by corporate officials seeking to blame external forces for their own shortcomings. Others have discussed naked short selling as a confusing or bizarre form of trading.”
That is, in a 54-word statement about a “concern”, precisely 11 words vaguely describe the existence of the “concern” and 43 say that there is no concern. This, though space is allocated to describe results from two off-topic studies from 2007 (one on failures in the IPO market, the other on the Canadian market):
A study of trading in initial public offerings by two SEC staff economists, published in April 2007, found that excessive numbers of fails to deliver were not correlated with naked short selling. The authors of the study said that while the findings in the paper specifically concern IPO trading, “The results presented in this paper also inform a public debate surrounding the role of short selling and fails to deliver in price formation.”
An April 2007 study conducted for Canadian market regulators by Market Regulation Services Inc. found that fails to deliver securities were not a significant problem on the Canadian market, that “less than 6% of fails resulting from the sale of a security involved short sales” and that “fails involving short sales are projected to account for only 0.07% of total short sales.”
Again, notwithstanding the thousands of articles such as the ones I cited above, the current Wikipedia page maintains that the mass media agrees that naked short selling is not a problem:
Reviewing the SEC’s July 2008 emergency order, Barron’s said in an editorial: “Rather than fixing any of the real problems with the agency and its mission, Cox and his fellow commissioners waved a newspaper and swatted the imaginary fly of naked short-selling. It made a big noise, but there’s no dead bug.” Holman Jenkins of the Wall Street Journal said the order was “an exercise in symbolic confidence-building” and that naked shorting involved echnical concerns except for subscribers to a “devil theory”. The Economist said the SEC had “picked the wrong target”, mentioning a study by Arturo Bris of the Swiss International Institute for Management Development who found that trading in the 19 financial stocks became less efficient. The Washington Post expressed approval of the SEC’s decision to address a “frenetic shadow world of postponed promises, borrowed time, obscured paperwork and nail-biting price-watching, usually compressed into a few high-tension days swirling around the decline of a company.” The Los Angeles Times called the practice of naked short selling “hard to defend,” and stated that it was past time the SEC became active in addressing market manipulation.
The Wall Street Journal said in an editorial in July 2008 that “the Beltway is shooting the messenger by questioning the price-setting mechanisms for barrels of oil and shares of stock.” But it said the emergency order to bar naked short selling “won’t do much harm,” and said “Critics might say it’s a solution to a nonproblem, but the SEC doesn’t claim to be solving a problem. The Commission’s move is intended to prevent even the possibility that an unscrupulous short seller could drive down the shares of a financial firm with a flood of sell orders that aren’t backed by an actual ability to deliver the shares to buyers.”
The Wikipedia page engages in such pettifoggery as: “However, the SEC has disclaimed the existence of counterfeit shares and stated that naked short selling would not increase a company’s outstanding shares” (true only in the narrow technical sense that the SEC does not consider that which is increased by naked short selling to be “outstanding shares”: by the same token, the National Transportation Safety Board could claim that there are no plane crashes because the NTSB considers anything which crashes to no longer be a plane).
And so on and so forth. You will find such gibberish on the naked short selling article on Wikipedia, but what you will not find is any of the information presented in the articles cited in Step #2. It is forbidden to enter that information into Wikipedia.
*****
THE TEST: ARE YOU FORBIDDEN FROM UPDATING WIKIPEDIA WITH THIS INFORMATION?
I know that to many this can be a maddeningly complicated issue, and it may not be easy to know who or what to believe. So I propose that you, the reader, conduct an easy, simple test, using the articles cited above. You can do it in about 2 minutes:
- Log on to Wikipedia (if you do not have an account you can create one in seconds);
- Go to the article on Naked Short Selling;
- Attempt to edit it with any information regarding events, data, or quotes from any of the articles cited above.
You will find that it is forbidden for you to add any information, data, or quotes from those numerous articles, or to correct any of the glaring omissions and laughable spin of the current article. If you try, your additions will be removed nearly instantaneously. In fact, you may find yourself banned from Wikipedia while all proof that you even made an edit disappears.
On “The encyclopedia that anyone can edit”, a resource that updates in seconds at the passing of a celebrity or the gaffe of a politician, you will find that you cannot insert quotes on this one topic, even when those quotes come from SEC Chairmen, economists, presidential candidates, Congressmen and Senators, G-20 regulators, and Wall Street leaders, even when those quotes appeared months or years ago in The Economist, Reuters, DowJones, Associated Press, or Bloomberg.
Two million English-language articles work by one set of rules, but this article on a grave financial crime turns out to run on a secret set of rules.
And that, dear reader, is the stutter-stepping black cat that should wake you to the synthetic reality you inhabit.
Postscript: If you want to know how this is being done, watch Judd’s magisterial “Lecture on abuse of social media by stock manipulators“. And if you want the back-story on that, read TheRegister’s article, “Emails show journalist rigged Wikipedia’s naked shorts – Overstock’s Byrne vindicated amidst economic meltdown” by Cade Metz.
SEC hands out bonuses to staff:
http://blogs.wsj.com/washwire/2009/03/27/sec-hands-out-bonuses-too/
Too funny!
Dr. Jim DeCosta and ALL,
Here is a link to your paper you sent to the SEC about…
“A CLOSER LOOK AT THE NSCC’S “AUTOMATED STOCK BORROW PROGRAM” OR “SBP””
http://ftp.sec.gov/comments/s7-30-08/s73008-102.pdf
Interpretation/experts and opinions: Look life is very basic. It isn’t about interpretation.It isn’t about debating with others. It is very simple. ENFORCEMENT. And if those who are in position will NOT ENFORCE then remove them and replace them with those who will. Now we have a long list of those who want to debate and give their opinions. We can sit for hours and days and YEARS going over such nuances. Yet this is WAR. The financial system was attacked. And as that occurred this countries financial system nearly collapsed. Doesn’t matter if it is an attack on a world trade center with the intent of collapsing a system and exacting a change or attacking BSC and others to do the same. I’ve said it before in a post. Most here KNOW what has happened and HOW it happened. Heck, many even know WHO allowed it to happened or were complicit. How about we do something very simple. GET RID OF THE IRRESPONSIBLE and REPLACE WITH THE REPSONSIBLE. The FIRST step is simple. NAME THE NAMES. PUT FACES to those names. The black list is a good beginning. Let’s get it out there. Enough with the defense, let’s get offensive. Otherwise will be here 30 years from now discussing if Pearl Harbor could have been avoided? or WTC? or BSC? Of course they could!!!
Charge the no-performers in the SEC with crimes.
One of the other aspects of this fraud that I haven’t gotten across very well over the years is its “perpetual” nature. Any well-designed fraud will incorporate a mechanism to promote sustainability.
Let’s assume a U.S. corporation that is critical to our national defense comes under attack. Now we’ve got issues of national defense pitted against the insatiable greed of a handful of Wall Street crooks. Who would you bet on? As the readily sellable “securities entitlements” resulting from failures to deliver that the NSCC refuses to buy-in accumulate the share price obviously has to tank. Let’s say it goes down 90% after a year or two under attack. What does this result in?
It results in a long line of prospective investors with cash in hand that sense a bargain. Perhaps the corporation is now trading at only 5% of book value. To some financially-sophisticated investors it’s a no-brainer to back up the truck and buy every share that they can afford.
As the previous investors get their retirement funds stolen a new line up of unknowing victims is more than willing to take their place. They don’t have a clue that they’re walking into an SEC, DTCC, NSCC, FINRA “sponsored” ambush. Perhaps the naked short sellers on the attack side overdid it a bit and ran up naked short positions so large that they can’t cover it without being financially decimated. What have they now got to lose being that they’re past the point of no return? Post #198 above illustrates how incredibly easy and common it is to get to this point.
Historically at this point in the battle the naked short sellers start calling in favors from any source possible. The goal now becomes to do whatever is possible to get the company delisted by the SEC. Do you want to know what would be an excellent study for the SEC’s Office of Inspector General (“OIG”) to undertake? Study the FTDs in the share structure of the last 20 corporations that the SEC delisted and compare it to statistical norms.
Dr. Jim DeCosta,
I just read your paper to the SEC…
“A CLOSER LOOK AT THE NSCC’S “AUTOMATED STOCK BORROW PROGRAM” OR “SBP””
http://ftp.sec.gov/comments/s7-30-08/s73008-102.pdf
How the Wall Street Counterfeit Machine uses the SBP to counterfeit is clearer now in my mind.
So it appears that the paragraph in GAO Report I quoted above describes HOW a theoretical honest participate would use the SBP:
“Until the securities are returned, the lending participant no longer has ownership rights in them and, therefore, cannot re-lend them. Additionally, any delivery made using the Stock Borrow Program does not relieve the participant who fails to deliver from its delivery obligation to NSCC.””
From your letter to the SEC referenced above, it is clear that the SBP program does NOT WORK the way the GAO Report states it works whenever a participant wants to Sell what they NEVER INTEND TO DELIVER – COUNTERFEIT SHARES.
I think your letter can illustrated with some drawings. I will try my hand at this.
istandup,
The “ownership” issue provides what I like to refer to as a “semantical dust storm”. Let’s say that “Acme” has 100 million shares issued and outstanding and that all are held at the DTCC in “street name”. The transfer agent’s “record of ownership” will state that “Cede and Co.” (the nominee of the DTC) is the “legal, nominal, record” owner of all 100 million shares.
Let’s say that there are 80 million yet to be bought-in FTDs. Thus there are 80 Million invisible “securities entitlements” in the share structure of Acme that are actively weighing down its share price. These could be held in a variety of locations on Wall Street. Investors bought and paid for 180 million “shares” and/or “securities entitlements”. If all investors faxed in their monthly brokerage statements they would total 180 million “securities held long”.
After grossly misinterpreting the intent of UCC 8-501 the SEC holds that the “owners” of the 80 million “securities entitlements” which are mere accounting measures to denote failed delivery obligations should be allowed “to exercise ALL of the rights that comprise that security”. A legitimate share with a paper-certificated share located somewhere to justify its existence is also defined as “the ability to exercise all of the rights that comprise that security”. This makes legitimate “shares” to be synonymous with mere “securities entitlements” which result from the sale of nonexistent shares which is a rather troubling concept. By definition this would make FTDs in essence illegal because only the board of directors of a corporation can “issue” shares.
This interpretation makes the holders of the 80 million mere “securities entitlements” which by the way are not identifiable due to the “anonymous pooling” of all shares held at the DTCC and its participants as also being in essence the “owners” of the right to exercise the rights that comprise that security.
Thus 100 million “shares” are “legally” owned by Cede and Co. or the DTC and 80 million “shares” are “de facto owned” by the unidentifiable purchasers of the 80 million nonexistent shares sold. “De facto owned” means that you have the EXACT same rights as the unidentifiable purchasers of the 100 million “shares” issued by Acme’s board of directors. For all intents and purposes at the end of the day the people that sold “securities” but never delivered them brought about the “issuance” of “shares”. Note how critical it is to the perpetration of the fraud for the DTCC to insist on holding shares in an “anonymously pooled” format.
What if all investors had their own DTCC “internet mailbox” with a camera where they could keep an eye on their own paper-certificated parcel of shares? Neither the DTCC nor the sellers of nonexistent shares have the legal right to “issue” voting rights to the purchasers of bogus shares. This would dilute the voting power of all other shareholders because there are only 100 million votes that can be cast. If you demand delivery of your paper-certificated shares then you are guaranteed to have 100% of your voting power with no dilution.
Have you ever considered interviewing the clearing firm of your b/d to see just how “dirty” they are? Your voting power is going to be illegally scaled down proportionate to the “dirtiness” of your clearing firm because all you are granted to vote is a “proportionate interest” in the amount of shares that were delivered after purchase.
Dr. Jim DeCosta,
Thank you!
By the way, did you see anything in the GAO Report that specifically explained how Manipulative Naked Shorting is harming Long Stock holders and their corporations?
I am trying to put together a list of differences between Legal Short Selling and Abusive Naked Short Selling (Counterfeiting).
I will post if for everyone’s critique and corrections after I finish the 1st draft.
It’s critical to get a handle on how the crooks provide cover via distorting “ownership” issues.
“OWNERSHIP” ISSUES IN ABUSIVE NAKED SHORT SELLING
1) When an abusive naked short seller intentionally sells nonexistent shares to an unknowing U.S. investor and refuses to deliver that which he sold a “failure to deliver” (FTD) occurs.
Due to the concept of dilution to fellow shareholders the most damaging part of a “share” or “securities entitlement” is the ability to resell it in the open market. This is because both readily sellable “shares” and readily sellable “securities entitlements” count equally in contributing to the “supply” variable of shares and/or “securities entitlements” that interacts with “demand” variable to determine share price in the “price discovery” process.
2) The purchaser of the failed to be delivered shares is granted a “securities entitlement” which is defined as: the rights and property interest of an entitlement holder with respect to a financial asset.
3) In their amicus curiae brief filed in the “Pet Quarters” case the SEC asserted their interpretation of UCC Article 8-501 to be that any entitlement holder is granted the right to exercise ALL of the rights that comprise the security to which he has an entitlement.
4) What is the difference between a legitimate “share” of a corporation and a “securities entitlement” to a corporation? It’s the title of being the “legal, nominal, record owner” of those shares and that’s it! “Entitlement holders” don’t “own” anything but they are entitled to the rights and property interests of the security as if they were the “legal owners”.
5) The purchaser of “shares” or “entitlements” to shares doesn’t care about whether or not she or he is the “legal owner” of the “shares” or just an “entitlement holder”. She or he wants to be able to exercise the rights attached to the shares usually in the form of the right to resell it, the right to vote it on a one share, one vote basis and the right to receive dividends.
6) The power to exercise the “package of rights” attached to a “share” is the only important part of a share to 99% of the purchasers of shares.
7) The abusive NSCC participants that sell shares and intentionally refuse to deliver them in essence accounts for the “issuance” of the only important part of a “share” to 99% of investors.
9) The abusive NSCC participants that sell shares and refuse to deliver them in essence “issue” the most damaging part of a “share” and/or “securities entitlement” when they refuse to deliver that which they sell. The most damaging part being the “resale ability” which contributes to the “supply” variable in supply/demand interactions.
10) The identity of the “legal/nominal/record owner” and whether the seller of shares is the “legal owner” or not has nothing to do with the determination of share price.
11) Since “manipulation” involves the intentional alteration of the supply and demand variables leading to share price discovery then those that intentionally refuse to deliver that which they sell manipulate share prices lower.
12) Being that the legal title of “ownership” is not being conferred to the purchasers of undelivered shares then TECHNICALLY refusing to deliver that which you sell may not constitute “counterfeiting” per se but the manipulation of share prices downwards is irrefutable unless the laws of supply and demand don’t exist.
13) Since the DTCC statistics state that 99% of all deliveries occur on time and the overwhelming majority of the other 1% occur within a 2-day period then one could safely deem that any deliveries not made by T+6 or so could be labeled as “intentional” delivery failures done in an effort to release the damaging aspects of “securities entitlements” (dilution from resale ability) in order to manipulate share prices downwards regardless of any “ownership” issues.
14) Due to the extremely damaging nature of readily sellable “securities entitlements” any clearance and settlement system with integrity would look upon a “failure to deliver” (FTD) which always results in the procreation of incredibly damaging “securities entitlements” as an emergency needing to be tended to.
15) Since the only cure available when the seller of securities refuses to deliver that which it sold is a “buy-in” then the parties empowered to execute buy-ins would play a critical role in providing investor protection due to the damaging nature of “securities entitlements”.
16) When the employees (NSCC management) of those that routinely refuse to deliver the securities that they sell have all of the empowerment in the world to provide the only cure available (a buy-in) but refuse to do so in order to look after the financial interests of their abusive participants/bosses then a “fraud on the market” has been perpetrated.
17) If those that refuse to provide this only cure available (NSCC management) are mandated by Congress “to act in the public interest, provide investor protection and “promptly settle” all securities transactions” then these acts of fraud can become way out of control due to the “regulatory vacuum” created by their refusal to follow their mandate as well as their direct facilitation of these crimes.
18) Don’t get faked out by the tricky nature of the “ownership” of securities. In a clearance and settlement system where mere “securities entitlements” resulting from acts of fraud are for all intents and purposes treated exactly like legitimate “shares” of a corporation (excepting insignificant title issues) then the occurrence of an FTD would result in a deafening noise from the sirens and whistles going off at the NSCC. It would not result in the only party empowered to do buy-ins shirking their congressional mandates in an effort to look after the financial interests of its abusive bosses that refuse to deliver the shares that they sell for a living.
Legal Short Selling vs. Abusive Naked Short Selling (Counterfeiting)…
I am trying to make a list of general differences between these two forms of Shorting.
Help from all others would be helpful, since I am just learning about these differences and not too familiar with Shorting in general:
LEGAL Short Selling (LSS) vs. Abusive Naked Short Selling (ANSS):
A) Selling REAL Shares?
- (LSS)… Locate REAL Shares:
– PAY A FEE (%?) to owner to borrow real shares.
- (ANSS)… Sell Shares that do NOT Exist:
– PAY NO FEE to anyone since counterfeit shares are created and sold.
B) Length of Borrow Time?
- (LSS)… Length of Borrow Time is LIMITED:
– MUST PAY ANOTHER FEE (%?) to owner TO EXTEND Borrow Time beyond initial limited borrow time.
- (ANSS)… Length of Borrow Time is INFINITE:
– PAY NO FEE to anyone, since there is NO TIME LIMIT, since INFINITY is the TIME LIMIT.
C) Restrictions on Borrowed Shares?
- (LSS)… Owner Loaning Legal Shares for Legal Shorting CANNOT SELL these Legal Shares during Borrow Time as part of the FEE agreement with the Legal Short Seller.
– BORROWED SHARES ARE RESTRICTED, that is, they CANNOT BE SOLD by original owner during Borrow Time Period.
– BORROWED SHARES MUST BE RETURNED to Original Owner by a Legal Short after Legal Short does not want to extend Borrow Time by paying another Fee or Original Owner refuses to loan out share another time.
– BORROWED SHARES must be returned to ORIGINAL OWNER at end of Fee Agreement Borrow Time via Legal Short buying Real Shares in the open market
- (ANSS)… There are NO RESTRICTIONS on Shares of Naked Short Selling (Counterfeit Shares), since shares DO NOT OFFICIALLY EXIST, there are NO BORROWED SHARES, and there are NO FEES PAID, and NO BORROWED SHARES TO RETURN… Therefore the Seller of counterfeit Shares INCURS NO RESTRICTIONS….
– SINCE there were NO BORROWED SHARES before the sale, there are NO RESTRICTIONS on Borrowed Shares
– SINCE there NO BORROWED SHARES, NO SHARES have to be returned.
– SINCE there NO BORROWED SHARES, the Naked Short Seller does NOT have to buy Real Share in the open market to RETURN them to Non-Existent Original Owner.
D) – Clearance And Settlement System Used?
- (LSS)… Uses the Congressionally Mandated system “Delivery Versus Payment” (DVP).
– In exchange for 100% the price of a block of stock shares, a buyer receives real shares of stock.
– Money from buyer is transferred to seller.
– Quantity of shares purchased by buyer appear on monthly brokerage statement as “Long Shares.”
– Buyer RECEIVES Real Shares of Stock, because the Seller Delivered the Real Shares to buyer’s brokerage account.
– LEGAL SHORT SELLER MUST bear cost of purchasing shares in open market to replace borrowed shares.
- (ANSS)… Uses Illegally Converted system based upon “collateralization versus payment” (CVP).
– In exchange for 100% the price of a block of stock shares, a buyer receives non-existent shares of stock (counterfeit) via an accounting measure called “securities entitlements”.
– Money from Buyer is transferred to Seller.
– Quantity of shares purchased by buyer appear on monthly brokerage statement as “Long Shares.”
– Buyer is NOT NOTIFIED that his/her purchased shares were NOT RECEIVED (FTC – Fail to Receive), because the seller did NOT DELIVER real shares of stock (FTD – Fail To Deliver).
– ILLEGAL ABUSIVE NAKED SHORT SELLER (counterfeiting) DOES NOT BEAR COST of purchasing shares in open market to replace borrowed shares, since there were NO REAL SHARES BORROWED. Illegal ANSS has to bear the cost of ONLY 2% OF THE BUYERS PURCHASE MONEY in a special account.
E) Profit and/or Loss from Short Sale?
- (LSS)… Profit and/or Loss from Legal Short Sale is determined by the price of the shares Legal Short must buy in the open market to RETURN to the Original Owner at the end of the FEE Based Borrow Time MINUS Fees Paid.
– PROFIT… If share price goes DOWN during Fee Based Borrow Time, Legal Short makes a profit by purchasing borrowed shares in open market at a Lower price
– LOSS… If share price goes UP during Fee Based Borrow Time, Legal Short can have a LOSS when purchasing borrowed shares in open market at a HIGHER price than original price.
- (ANSS)… Profit and/or Loss from Abusive Naked Short Sale (Counterfeit Shares Sold) does NOT include the price of having to Purchase Borrowed Shares in the open market, NOR the Price of Borrowing FEES.
– Profit… If share price goes DOWN, the Seller who sold Counterfeit Shares to an unsuspecting buyer of long shares gains access to the Sellers Money and is allowed to use this money for any purpose it wishes WHILE STILL NOT DELIVERY REAL LONG SHARES IT SOLD TO A UNSUSPECTING BUYER.
– Since an Abusive Naked Short Seller (ANSS – counterfeiter) is allowed to use the illegally Converted Clearance And Settlement System based upon “collateralization versus payment” (CVP), a counterfeiter (ANSS) can guarantee its PROFIT for its illegal short sale by selling more and more and more Counterfeit Shares of the targeted company to unsuspecting long share buyers.
– Loss… If a counterfeiter (ANSS) allows a the targeted company’s stock price to rise by NOT SELLING MORE and MORE and MORE COUNTERFEIT SHARES of the targeted company to unsuspecting long share buyers, the counterfeiter will not be able to gain access to the money of the new unsuspecting long share buyers. AND MOST IMPORTANTLY, the collateralization fee for all its counterfeit shares will rise causing money to move OUT of its bank account back into the special collateralization account.
– Maximum Loss is 2% collateralization fee?????
F) Buyers of Long Shares Receive What in Exchange for 100% the Price of Long Share in a Corporation?
- (LSS)… Real Share of Stock
- (ANSS)… Counterfeit Shares of Stock, which depress the stock price by illegally increasing the total number of shares available for sale.
If you are “just learning” istandup, you should allow those who know it well to inform others. I’m learning a lot from what Jim DeCosta has provided.
Rondoc, lawsuits would work in this case, but the problem is each client would sue their own individual brokerage. It wouldn’t be a class action situation.
The brokerage, in that case, would just give whoever started litigation the private share at the expense of someone who is more apathetic.
And what are you going to sue for? The people who wouldn’t get their shares would tend to be the smaller clients (they look after the bigger clients first), so the damages would be quite limited compared to the cost of litigation.
It can be effective, though. There was a penny stock that went from ten cents to $22 over a few weeks (Genemax, I think, something like that) when the company started assisting shareholders with lawsuits against their brokerages.
It was Genemax. Seven years ago and still nothing has changed.
http://www.rgm.com/articles/GeneMax.html
The single thing you can do now to protect yourself and family since the Goverment is not about to is buy gold and this guy is saying something I learned a few months ago from a forner European Banker.
Buy gold and silver. If you are a small fry like me buy silver first…NOW!
By: Bob Chapman, The International Forecaster
– Posted Sunday, 29 March 2009 | Digg This Article | Source: GoldSeek.com
US MARKETS
The big secret that the Illuminati don’t want you to know about is that they are gold-bugs themselves, and are even more fervent about precious metals than you are. They are, of course, closet gold-bugs, hiding their wanton desire for the “barbaric relic” to make it look like it is a cumbersome thing of the past, an ancient curiosity from a bygone era that no longer serves a valid or useful purpose. They hide their lustful desire for precious metals from the public so that the public remains moribund about owning the King and Crown Prince of currencies, gold and silver. They don’t want any monkey-see, monkey-do, from their pool of future indentured servants. Their worst nightmare is that the serf proletariat would come to own thousands of tons of gold and silver bullion like they do. All their institutions and front companies, like central banks, bullion banks, investment banks and brokerage houses, all de-emphasize investment in precious metals for one reason, to keep it out of the hands of the public.
In the meanwhile, the Illuminati are pilfering gold from their own financial institutions at fire-sale prices like the sales conducted by Gordon Brown, the King of Fire-Sale Gold, when he sold the UK’s national gold at the bottom of the gold market, or by outright pilfering as was done with the gold held in Fort Knox, allegedly by the Rockefellers. American Illuminists have been collecting their gold and silver hoards for over a century, while European Illuminists have been collecting their hoards for many centuries. All their gold and silver lies in Swiss vaults, or in secret offshore locations. These hoards serve as their insurance policy if their plans to become masters of the universe should go astray. In addition, their mounds of gold and silver might be offered as reserves for a new world currency in order to sell that concept to the public, thereby giving control of the world currency to private bankers who would operate outside of government control. Or there might still be government control, as long as they, the Illuminati, control the world government, of course.
In summary, the Illuminist gold cartel is a conspiracy of outward suppression of precious metals, while inwardly it is one of aggressive acquisition of both gold and silver. They acquired control over national holdings of gold and silver via the system of central banks around the world, and they have systematically looted their own financial institutions and gold reserves to gain control over what they know is the only real currency recognized as such around the world.
Always remember, if you lose control over your nation’s currency, you lose your sovereignty and become a bondservant to the Illuminati. As Thomas Jefferson said, central banks are more dangerous than standing armies. By extrapolation, a single world bank would be dangerous beyond your wildest imagination.
As long as the Indian public are the only commoners with gold holdings, which rival their own, the Illuminati are quite content. This is why mints around the world have curtailed the amount of gold and silver bullion that is made available to the public. This also explains why gold and silver, in what can now be termed the “physical black market,” are trading at such hefty premiums to the prices cited in the futures markets. You are being starved of precious metals intentionally and malevolently to hinder you from doing the only thing that will prevent these miscreants from bringing you to your knees financially so they can shove their one-world government down your throat.
They will grudgingly allow you to own paper gold and silver. The futures markets in precious metals, along with the mints and the new ETF’s, were set up specifically for that purpose. They knew that the demand for precious metals would grow as they intentionally sabotaged fiat currencies and economies around the world to pave the way for world government. So they set up all these paper markets as a trap for lazy investors to acquire an interest in precious metals without taking physical possession so that they could retain control of the physical inventories and therefore the price for same. In fact, all futures markets were set up so that the Illuminist interests could control prices on all commodities whether or not they physically owned or produced them. That is the real reason why futures markets were created, and not for the usual bogus reasons given, such as securing prices on commodities for future deliveries. Look at what happened to the uranium market as soon as it traded on the futures exchange. Then consider the cartel’s decades long suppression of precious metals via futures contracts, and also the recent games played with prices for oil and food futures. We rest our case.
As long as you do not take physical delivery, they will continue to control the physical supplies of gold and silver via leasing and lying, using “smoke and mirrors” and “creative accounting methods” to hide their nefarious dealings, such as those conducted through the Exchange Stabilization Fund, the London Gold Pool, the naked-shorting of shares in the silver ETF and the leasing of ETF gold and silver to cover short positions of the Illuminist commercials in the paper markets such as CRIMEX futures contracts and OTC derivatives contracts. The Illuminist financial institutions are down to the dregs as far as their physical institutional holdings are concerned, but their shortage is not being sufficiently challenged and exposed quickly enough because physical delivery is not being utilized as extensively as it should be, which allows them to lie about their bullion inventories. They will not be able to lie anymore when demand outstrips supply and they run out of precious metals in deliverable form to satisfy demands for physical delivery, which is why you should be demanding physical delivery of both gold and silver by the truckload.
Incidentally, the one-month gold lease rates are now negative again, meaning they will pay you to lease their gold. And guess who’s doing the leasing. The gold ETF’s Illuminist bank sponsors of course, at near zero or even negative profit to boot. Looks like the criminal sponsors are taking good care of their lucky investors. Yeah, they are taking care of them alright! Every time these ETF’s purchase gold or silver, the cartel’s supply of gold and silver available for suppression grows accordingly and it is immediately leased back to the bullion banks for suppressive purposes. The whole ETF debacle can be likened to a situation where you are in a shootout with your mortal enemy. He has run out of ammunition and you have him dead to rights. You then hand him your loaded weapon and tell him to shoot you! Why the hard money community just doesn’t get it both stuns and amazes us.
The miscreants who run the gold cartel use their control over paper markets, which is enabled by insufficient physical off-take caused by the diversion of hard money capital into paper gold and silver assets (other than resource stocks), to suppress precious metals prices.
This allows the Illuminist Puppet Masters and their henchmen to clean up in the paper markets with all their short positions, which are mostly naked. These short positions are monopolistic, manipulative and illegal, but regulators like the SEC and CFTC do nothing about them because our regulators are also criminals and are part of the cover up.
THE INTERNATIONAL FORECASTER
SATURDAY, March 28, 2009
032809 (8)_IF
P. O. Box 510518, Punta Gorda, FL 33951-0518
An international financial, economic, political and social commentary.
‘Naked’ Ban Is Extended by Japan
MARCH 25, 2009
By TAKASHI NAKAMICHI
TOKYO — Japan will extend its ban on the so-called naked short selling of stocks to the end of July as the country’s share markets remain shaky, Finance Minister Kaoru Yosano said.
The prohibition of the trading strategy — in which investors sell stocks they don’t own, even without first borrowing them — was introduced in late October.
[Kaoru, Yosano]
Yosano Kaoru
It is one of numerous temporary, emergency measures taken by Japan’s authorities to prevent sharper stock-market drops from worsening the nation’s recession.
The move to delay the end of the ban from March 31 suggests that a recent recovery in Tokyo stock prices to a two-month high has failed to dispel policy makers’ worries. “With the markets still unstable, we have decided it is appropriate to keep [the measure] for the time being, partly from the perspective of preventing unfair dealings in advance,” Mr. Yosano said.
Short-sellers typically borrow stocks and then sell them, profiting from a fall in price when they buy back the securities later. Naked shorting removes the need to first borrow the stock, which means that larger volumes of shares can be dumped on the market.
Short-selling has drawn fire from regulators across the world, who say it has contributed to the sharp market declines of recent months.
Falls in share prices over recent months have undermined the lending ability of Japanese banks, which hold lots of stocks, and that has exacerbated the nation’s credit conditions.
Mr. Yosano, who also doubles as economy and banking minister, expressed doubts over the sustainability of a recent pickup in the benchmark Nikkei 225 Stock Average. The index closed at its highest level in more than two months Tuesday, ending up 272.77 points, or 3.3%, at 8488.30, its highest close since Jan. 9. The index struck an intraday high of 8504.41 during the session.
“Stocks [often] betray people’s expectations,” he said.
Write to Takashi Nakamichi at takashi.nakamichi@dowjones.com
( http://online.wsj.com/article/SB123787796767322847.html )
Everyone knows that these guys are amongst the dirtiest on Walll Street yet I guess since they own every major goverment position in the Treasury they can get away with murder huh?
On The Cover/Top Stories
Did Goldman Goose Oil?
Christopher Helman and Liz Moyer, 03.25.09, 06:00 PM EDT
Forbes Magazine dated April 13, 2009
Lloyd Blankfein’s Goldman Sachs turned up everywhere.
How Goldman Sachs was at the center of the oil trading fiasco that bankrupted pipeline giant Semgroup.
When oil prices spiked last summer to $147 a barrel, the biggest corporate casualty was oil pipeline giant Semgroup Holdings, a $14 billion (sales) private firm in Tulsa, Okla. It had racked up $2.4 billion in trading losses betting that oil prices would go down, including $290 million in accounts personally managed by then chief executive Thomas Kivisto. Its short positions amounted to the equivalent of 20% of the nation’s crude oil inventories. With the credit crunch eliminating any hope of meeting a $500 million margin call, Semgroup filed for bankruptcy on July 22.
But now some of the people involved in cleaning up the financial mess are suggesting that Semgroup’s collapse was more than just bad judgment and worse timing. There is evidence of a malevolent hand at work: oil price manipulation by traders orchestrating a short squeeze to push up the price of West Texas Intermediate crude to the point that it would generate fatal losses in Semgroup’s accounts.
Yahoo! Buzz”What transpired at Semgroup was no less than a $500 billion fraud on the people of the world,” says John Catsimatidis, the billionaire grocer turned oil refiner who is attempting to reorganize Semgroup in bankruptcy court. The $500 billion is how much the world would have overpaid for crude had a successful scam pushed up oil prices by $50 a barrel for 100 days.
What’s the evidence of this? Much is circumstantial. Proving oil-trading manipulation is difficult. But numerous people familiar with the events insist that Citibank, Merrill Lynch and especially Goldman Sachs had knowledge about Semgroup’s trading positions from their vetting of an ill-fated $1.5 billion private placement deal last spring. “Nothing’s been proven, but if somebody has your book and knows every trade, it would not be difficult to bet against that book and put the company into a tremendous liquidity squeeze,” says John Tucker, who is representing Kivisto.
What’s known for sure is that Goldman Sachs, through J. Aron & Co., its commodities trading arm, was in prime position to use such data–and profited handsomely from Semgroup’s fall. J. Aron was Semgroup’s biggest counterparty, trading both physical oil flowing through pipelines and paper oil, in the form of options and futures.
When crude oil peaked in July, Semgroup ran out of cash to meet margin requirements on options contracts it had with Aron, contracts on which it had paper losses of $350 million. Desperate to survive, Semgroup asked Aron to pony up $430 million it owed on physical oil. Aron said no, declared Semgroup in default on its contracts and demanded immediate payment of losses.
Some answers may emerge in late March when former FBI director Louis Freeh releases a report on the trading surrounding Semgroup’s demise. He was hired by Semgroup and given subpoena power by the bankruptcy court judge in Delaware. Meanwhile the Securities & Exchange Commission is investigating, and lawyers involved in the bankruptcy say that Manhattan District Attorney Robert Morgenthau’s office is looking into the actions of New York firms in the collapse. His office declines to comment.
Comment On This Story
Goldman says only that any allegations of oil price manipulation are “without foundation.” Merrill and Citi (nyse: C – news – people ) declined comment.
Goldman and Aron (where Goldman Chief Executive Lloyd Blankfein got his start) have had a deep connection with Semgroup. In 2004 two former Goldman bankers bought a 30% stake in Semgroup for $75 million through their New York private equity firm, Riverstone. Both men, Pierre Lapeyre and David Leuschen, had helped form Goldman’s commodity trading business, and Leuschen had been a director at Aron.
In late 2007 Semgroup entered into an oil-trading agreement with Aron. The companies began trading both oil futures and physical crude. Aron sent much of the oil it bought from Semgroup to a Coffeyville, Kans. refinery in which Goldman owns a 30% stake.
Semgroup’s troubles mounted in the first quarter of 2008, when it had to post $2 billion in margin to cover losses. Goldman offered to underwrite a $1.5 billion private placement. Kivisto’s attorney Tucker and others believe that it was in the Wall Street research for this offering that Semgroup’s trading bets became fatally exposed. In April the banks (Merrill Lynch and Citibank were co-underwriters) required that Semgroup submit its trading positions to a stress test, a process one source describes as a “proctology exam.” Goldman ended up abandoning the placement as investors balked at braving the liquidity crunch.
Meanwhile the futures markets had gotten wacky. On June 5, with no news catalysts, oil futures spiked $5 a barrel, the biggest one-day jump since the outbreak of the first Gulf war. The next day, on no news, the price jumped another $10 to $138. Traders say that in the days leading up to the $147 peak on July 12 there was the smell of blood in the water. “We just kept bidding the market higher,” one trader says.
According to a trading summary submitted with court documents, Semgroup had entered into some terribly costly trades with Aron. In February 2008 Semgroup sold Aron call options on 500,000 barrels of oil for July delivery with a strike price of $96 per barrel. That meant that at the peak Semgroup’s loss on each of those barrels was $51, or $25.5 million on that trade. Goldman says it “can’t comment on the trading positions of counterparties.”
Shortly before it filed for bankruptcy, Semgroup sold its trading book to Barclays (nyse: BCS – news – people ) Capital. Barclays’ bold bet was that the price of crude would fall, erasing the losses. It is believed that 30 days later Barclays was sitting on a $1 billion gain as oil indeed fell, to $114 a barrel. Barclays wouldn’t comment other than to confirm it still owns the book. That prices plunged after Semgroup failed is more evidence of manipulation, says Catsimatidis: “With the portfolio in Barclays’ hands they could not squeeze the shorts anymore. The jig was up, and oil collapsed.”
Since the bankruptcy, Aron has agreed to pay Semgroup only $90 million to settle up accounts. That’s not enough for the dozens of oil producers who still haven’t been paid for $430 million in oil that Semgroup delivered to Aron. “We sued J. Aron because Semgroup didn’t do it,” says Phillip Tholen, chief financial officer of oil company Samson Resources. “I can’t fathom why they wouldn’t file against J. Aron for those monies.”
One possible answer: the Goldman connection. Going after Aron’s cash would complicate matters with Riverstone, which still wields sway over the board. The creditors have reason to keep Riverstone and Goldman happy; the duo has teamed up to buy myriad energy assets in recent years, most notably a $22 billion leveraged buyout of pipeline king Kinder Morgan. They are likely to team up again to buy choice Semgroup assets out of bankruptcy.
http://www.forbes.com/forbes/2009/0413/096-sachs-semgroup-goldman-goose-oil.html
In order for this to be cleaned up all ofthese “Financial Institutions” must be allowed to g Bankrupt, so all can see the real toxic crap they have on their books!!
Bank Of America’s Ponzi Problem
Asher Hawkins, 03.27.09, 5:20 PM ET
Bank of America aided and abetted common law fraud by acting as banker to a $400 million Ponzi scheme, according to a civil complaint filed Thursday. The complaint was filed in the U.S. District Court for the Eastern District of New York on behalf of a would-be class of mainly blue-collar Long Islanders by attorneys seeking class-action status.
Bank of America declined to comment.
The case involves Nicholas Cosmo, former owner of Agape World Inc. Cosmo was charged by federal authorities in January with investment fraud. He allegedly lured investors with the prospect of investing in high-interest loans but instead used the proceeds to trade commodities futures.
The investments that Cosmo misrepresented ultimately cost investors $400 million in losses and were used to feed a Ponzi scheme, according to the civil complaint. Bank of America was so deeply involved with Cosmo’s firm that a bank employee had an office next Agape World’s board room, it added.
Cosmo had a checkered history prior to his alleged involvement with Bank of America. In 1997, while a licensed stockbroker, he admitted to misleading investors and forging documents. He was later sentenced to nearly two years in prison, ordered to undergo therapy for a gambling problem, had his brokers’ license revoked and was barred from associating with any members of the National Association of Securities Dealers. Yet by 2004, Cosmo was back in business at Agape, which promoted itself as a provider of bridge loans to commercial borrowers.
“Bank of America ignored banking compliance standards and did not file any suspicious activity reports as $400 million was run through numerous BofA accounts by a convicted felon,” says Jacob Zamansky of Zamansky & Associates, one the plaintiff’s lawyers in the lawsuit. “This case highlights the role of financial institutions in assisting Ponzi schemes.”
Yesterday’s complaint accuses Bank of America of housing 13 accounts used by Cosmo and his brokers, some of whom had criminal records of their own. The bank did nothing to intervene as investor money was commingled, wired to commodities futures brokerages and used to pay off Cosmo’s personal expenses, according to the complaint.
The five plaintiffs named in the complaint filed yesterday are all from Long Island. They include a schoolteacher, a police officer, a retired police captain, a clothing store employee and a massage therapist. They lost a total of $405,000 they’d invested with Agape, the complaint says.
The scheme may have suckered in as many as 6,000 investors from across the country, but mainly from Long Island, according to Zamansky.
Even before you buy gold turn to God.
Everthing we see shows we need this as a country more than anything.
History, both secular and Biblical has this ruin of empires, one right after the other. Rome being the one most are familiar with but there have been one after another for more years before Rome then from Rome to now. Common to all have been the loss of any moral restraint. The whole NSS/FTD is just a example of a lost morality. Wrong has become ’smart dog eat dog business of legendary investors’ CMBC talking heads proclaim….The Bible as well as our founding laws ans mores say it is theft…plain and simple.
Think about it!
ginger,
You stated:
“If you are “just learning” istandup, you should allow those who know it well to inform others. I’m learning a lot from what Jim DeCosta has provided.”
I understand your point of view. On the other hand, my personality does not let me just let the experts speak.
My disclaimer lets everyone see I am not an expert.
We, the common man and woman in the United States, need to take this fight to the streets. When I am standing the street talking to my neighbor, I will not be able to have Dr. Jim DeCosta standing next to me so the can explain things.
From my point of view, I have to come into a better and better understanding of the WALL STREET COUNTERFEIT MACHINE so I can talk to people without the experts standing next to me.
So please forgive me for not following your suggestion.
One final point… as I struggle to better understand the complexities created by all the Counterfeit Machine Lawyers and reflect this back into this forum, some experts here might see where further clarification on their part will strengthen the legal arguments they have been developing.
Take care and keep learning.
The deep capture of our economic system by the financial interests and their political courtesans is becoming far more widely acknowledged with each passing day.
The following introduction from Simon Johnson’s excellent essay, “The Quiet Coup”, an article which appears in the May 2009 Atlantic, nicely reflects the growing recognition of the reality that Patrick Byrne has tirelessly chronicled:
The crash has laid bare many unpleasant truths about the United States. One of the most alarming, says a former chief economist of the International Monetary Fund, is that the finance industry has effectively captured our government—a state of affairs that more typically describes emerging markets, and is at the center of many emerging-market crises. If the IMF’s staff could speak freely about the U.S., it would tell us what it tells all countries in this situation: recovery will fail unless we break the financial oligarchy that is blocking essential reform. And if we are to prevent a true depression, we’re running out of time.
The full essay is available here:
http://www.theatlantic.com/doc/200905/imf-advice
Is there such a thing as a Short Squeeze with shares created via Manipulative Naked Shorting?
Since by definition, Naked Shorting does NOT borrow real shares, there is no obligation to purchase real shares…
Since Naked Shorting has an NO delivery date, or an infinite delivery date, there is not obligation to delivery by a certain time…
So it appears there is NO SUCH THING as a Short Squeeze with Naked Short Shares.
The only thing I rememeber is the Collaterialization fee expense. If a Counterfeiting Hedge Fund as a guest of a Market Maker creates a zillion counterfeit shares, its Collaterialization fee becomes more and more expensive as the price goes up.
So is this a Collaterialization Squeeze?
Shortselling scumbucket Soros:
http://www.budapesttimes.hu/content/view/11517/221/
From the article on Soros:
Shares in OTP bank continued to fall through October as the economic crisis in Hungary deepened. They are now trading at roughly half the price they did before the Soros Fund Management deal. PSZÁF said its investigation had revealed that Soros Fund Management had borrowed 390,000 OTP shares on the same day in order to carry out the “short sell”.
Stop and incarcerate these sociopaths now, or we’re doomed.
If you can follow the below article then you’ve attained a very solid understanding of the brilliant nature of abusive naked short selling.
DEAR REGULATORS; MENTALLY REMOVE THE ASTERISK
It should come as no surprise that there are brilliant lawyers employed by the “banksters” and hedge funds that comb the text of the securities laws searching for loopholes that can make money for their bosses which in turn justifies their salaries. One line in one obscure securities law could be worth trillions.
The best way that I know of to learn which particular loophole is being utilized is to study the abusive naked short selling suits filed against the DTCC, DTC, NSCC, market makers, “banksters”, prime brokers, clearing firms, hedge funds etc. and see what shakes out. Two things keep “shaking out”. One is that the SEC to this very day still holds that the NSCC’s “Automated Stock Borrow Program” (SBP) is just fine and dandy no matter how corrupted it has become. The second is that UCC Article-8-501 FORCES us (as if at gun point) to allow the holders of “securities entitlements” resulting from yet to be bought-in failures to deliver (FTDs) to exercise ALL of the rights and property interest that comprise the “security”.
So what’s so clever about leveraging the wording of 8-501? It has to do with the incredibly damaging nature of the “securities entitlements” that result from FTDs and the fact that the ability “to exercise all of the rights and property interest that comprise a security” for all intents and purposes is a “share” of a corporation. The following flow diagram might help understand this concept.
FTDS → SECURITIES ENTITLEMENTS → SHARES*
In this flow diagram a “share*” is a “share” of a corporation EXCEPT FOR THE FACT THAT THE “LEGAL OWNERSHIP” TITLE IS NOT INCLUDED BUT FOR ALL INTENTS AND PURPOSES THE “LEGAL OWNERSHIP” TITLE IS 100% MEANINGLESS WHEN “THE ABILITY TO EXERCISE ALL OF THE RIGHTS AND PROPERTY INTEREST THAT COMPRISE A SECURITY” IS ALREADY INCLUDED IN THE “SCURITIES ENTITLEMENT”. This phraseology renders the “legal owner” title to be a moot point to an investor but an excellent cover up for fraudulent behavior to “opportunists”. Have you heard of the term “red herring”?
In order to fully understand the brilliant design of abusive naked short selling frauds you need to MENTALLY REMOVE THE ASTERISK! Unaddressed failures to deliver for all intents and purposes result in the “issuance” or perhaps “release” of new “shares”. The critical “right” to focus on in the “package of rights” that comprise a “share” is the right to resell the “share” at a time of one’s own choosing. This is also the most damaging “right” as share prices are predicated on the “supply” of that which is readily sellable, whether technically a “share” or a “securities entitlement” independent of who the “legal owner” is, as it interacts with the “demand” variable to determine share price through the “price discovery” process.
After mentally removing the 100% meaningless asterisk we are left with FTDs in essence resulting in the “issuance” or perhaps “release” of “shares” out of thin air. Now that’s a loophole worthy of abusing. Just think about it; there is a “2-for-1” bargain also accessible. The mere act of refusing to deliver that which you sold firstly creates a naked short position and secondly the conversion of the resulting “securities entitlement” into a “share” (without the meaningless “legal owner” title) which in turn depresses the share price of the security by adding to the “supply” of that which is readily accessible which in turn creates value for your naked short position.
Does it make sense that the “legal ownership” title is indeed 100% meaningless when a “securities entitlement” ALREADY grants you the right to exercise the rights that comprise the security? There is nothing to a “share” above and beyond the ability to exercise the rights attached to the “share”. Does it make sense that to fully appreciate this fraud you need to MENTALLY REMOVE THE ASTERISK? The crooks that perpetrate these frauds want you to concentrate on the asterisk.
The crooks and their facilitators will proffer the argument that TECHNICALLY the number of “shares outstanding” does not increase with naked short selling so it can’t be very damaging i.e. concentrate on the asterisk. What they don’t tell you is that “shares outstanding” refers TECHNICALLY to shares “issued” by a company’s board of directors that their transfer agent is aware of. These shares with the meaningless asterisk are not visible to a company’s transfer agent, management team or existing or prospective investors yet they are 100% as damaging from a dilution point of view as a “share” without an asterisk.
With the phraseology used in UCC 8-501 literally FORCING the securities intermediaries on Wall Street to “issue” new shares every time an FTD occurs you can see why these frauds have grown totally out of control. The problem is that UCC Article 8 also has plenty of phraseology that provides a backstop for abuses. The law also states that sure you can basically do the equivalent of “issuing” new shares when FTDs occur but you’d better OBTAIN and MAINTAIN the “shares” in your vault system to match any incredibly damaging “securities entitlements” or “shares*” you issue. This particular law is 100% ignored on Wall Street.
Another part of UCC-8 forbids the “issuance” of “securities entitlements” and therefore “shares*” if the sum of the number of legitimate “shares” already outstanding plus the number of mere “securities entitlements” or “shares*” issued exceeds the number of shares “authorized” by a corporation’s Articles of Incorporation. This law is also 100% ignored as there is no SRO or regulator keeping tally of the number of mere “securities entitlements” that have been “issued”. Thus the crooks and the SROs and regulators that facilitate these frauds have chosen to “cherry pick” UCC-8 and follow the parts that allow them to steal from investors but ignore the parts that provide investor protection. UCC Article 8 as well as all securities laws are a “package deal”.
The following flow diagram might help understand this concept even better.
Legal: Public Company → Finance business venture → SHARES
Illegal: Broker-Dealer → FTDS → Security Entitlements → SHARES*
Maybe “Lawful” and “Unlawful” would be better terms than “Legal” and “Illegal”
If the SEC banned all naked shorting, it wouldn’t stop the problem. All you have to do is route your short sale through Germany or Canada. Even if the buyer is American, the SEC has no authority to force the German or Canadian brokerage to deliver the share.
They would have to create a rule to forbid American brokerages from trading with foreign brokerages that don’t deliver.
Anonymous,
I got this e-mail this morning from a Canadian colleague:
“This morning a general notification went out to clients of most CDN. brokerage houses that effective march 30, 2009 no short sales of US stocks can occur until the house has first confirmed the availability of shares to cover the short sale by settlement date. ” this is to comply with the requirements of US regulation SHO”. All short sells will be held until such time as the house can confirm the availability of shares to borrow, the length of any delay will be specific to each stock and will be indeterminate in advance”.
After 4 years of listening to my “telephonic tirades” over Canada’s facilitation of abusive naked short selling I actually befriended (or wore them down) some of the Canadian securities regulators. They will tell you up front that the abusive naked short selling of U.S. corporations has become such a large % of their securities business that they had trouble in getting rid of it. As far as Germany I remember well the “Berlin Bremen debacle” wherein a thousand or so U.S. corporations woke up one morning to find out that their shares were unknowingly trading over in Germany. I’ve always told my clients to be careful listing over in Frankfurt just in case.
It has been unconscionable over the years that the DTCC has allowed the Canadian b/ds to “pigtail” into our NSCC despite their history.
Do you remember in one of Patrick Byrne’s
videos where he told the story of being at a cocktail party in Manhattan with a bunch of Wall Streeters and he overheard a conversation involving 2 guys talking about how the SEC was coming down on naked short selling and one of the guys commented “No big deal: we’ll always have Canada”?
This is good news, but they’ll just route the orders through Berlin, UK or Malaysia.
The DTCC allows foreign depositories to have negative share positions with them for arbitrage purposes. The seller just claims that he is selling in one country and buying in another to take advantage of arbitrage, but no one checks to make sure he actually has a long position.
This is the CDS (Canadian equivalent of the DTCC) site and I just went through the news and rules and can’t find anything that says they can’t naked short as of end of March.
http://www.cds.ca/cdsclearinghome.nsf/Pages/-EN-Participantrules?Open
The most recent rule on SHO seems to be from 2006 and it seems to only apply a buy in to brokerages using the cross border service and not brokerages located wholly inside Canada.
Dr. DeCosta, do you have a link to the new rule?
It is unlikely that Canadian regulators will alter the rules with respect to short-selling because the imperatives for further regulatory action do not appear as compelling in Canada.
http://www.langmichener.ca/index.cfm?fuseaction=content.contentDetail&ID=10505&tID=244
An article from 2003 when the SEC banned companies that had large naked short positions from withdrawing from the DTCC and continuous net settlement system.
http://www.otcjournal.com/archive/listserv/20030518-1.html
Would someone explain the foreign exchange problem? If we have rules in place to stop NSS domestically, why wouldn’t that protect all account holders at US brokers? (If you have an account at a foreign broker, that’s different.) Their shares must be settled in T+3, regardless of who the seller was. It’s the responsibility of the US brokers and DTC participant. If we enforce our rules, non-delivery would cause a buy-in. I know we don’t have jurisdiction in another country, but we can require delivery in our markets, even by a foreigh participant.
Previous posts here seem to indicate that stopping NSS domestically won’t protect us from the foreign exchange loophole. I don’t get it.
G.M stock [declared null and void in a 'quick rinse' bankrupcy] that is right now being counterfieted ,sold and never intending to be delivered, is making someone richer.
I can’t do it.
You can’t do it.
We are not market makers.
EVERY SHARE MUST BE BOUGHT IN .
To allow G.M. to be devoured by wall street while the government not only does not help G.M. survive it helps wall street kill it.
How blatent does this have to get people?
No one will ever know how many shares of G.M. are fake.
Thats just how wall street wants it .
No witnesses.
Goodbye another chunk of what was the great U.S. economy.
http://onlinejournal.com/artman/publish/article_4521.shtml
Commentary Last Updated: Mar 30th, 2009 – 10:40:19
Bankrupting the world
By Jerry Mazza
Online Journal Associate Editor
Mar 30, 2009, 00:25
Email this article
Printer friendly page
The so-called Public Private Partnership Investment Program (PPPIP) introduced last Monday, by Treasury Secretary Timothy Geithner not only stands to bankrupt America but the global financial system as well. This is the worst yet of the bailouts, a swindle if ever there was one, which will cause President Obama’s approval rating to plummet. In fact, count me among those coming to the president’s aid. I really don’t think he understands what this means.
Consider Geithner as the face, the voice though not the brain, for this program which advocates turning over the keys to the banking system to a bunch of hedge fund sharks, and all at taxpayer’s expense. The cost could more likely end up being $6 trillion than the $1 trillion in starter money. In fact, it’s more likely that the dastardly plan was launched like a missile from jolly old London, which is in line to lose big if their offshore hedge fund empire is shut down.
So, we are not dealing with just your typical political blunder. This is a policy fiasco built to bring down the United States altogether. I believe it’s coming from a London-based financial oligarchy out to do in the US altogether. Speaker of the House Nancy Pelosi and House Financial Services Committee Chairman Barney Frank and the one and only Larry Summers, head of the Whitehouse Economic Council, are completely complicit in what amounts to an act of treason in recommending this.
Parenthetically, remember that it was Summers who, as Treasury secretary under Bill Clinton worked indefatigably to repeal the Glass Steagall Act of 1933 in 1999. And Summers worked to replace it with the 11/12/99 Gramm-Leach-Bliley Act, which was enacted on Nov. 12, 1999. The first Glass-Steagall Act was passed in February 1932 to stem deflation and expand the Federal Reserve’s power to offer rediscounts on more types of assets and issue government bonds as well as commercial paper.
The second Glass-Steagall Act was passed in 1933 when FDR took office to shore up the collapse of a large portion of the American commercial banking system. It established the Federal Deposit Insurance Corporation (FDIC), still indispensable to this day, and included banking reforms which were created to control speculation. Its most notable feature was that it prohibited a bank holding company from owning other financial companies. It made sure that a commercial or investment bank and a savings and loan bank were separate entities and never the twain should meet.
This meant you couldn’t have the likes of Citigroup, the now defunct Lehman-Brothers, Bear-Stearns, Merrill Lynch, Morgan Stanley, Deutsche Bank, et al playing spin the derivatives with your checking account or savings account money. Yet this separation of investment and savings, almost as good as separation of church and state, removed a major source of capital available to the casino side of the stock market, particularly the hedge funds like AIG’s Financial Product arm, a hedge fund stuck onto the world’s once largest insurance company, now practically worthless.
In fact, to gain a sense of the worthiness of the Glass-Steagall act, China still maintains its principle: a separation between commercial banking and the securities industries. In the wake of world financial distress, Chinese support for this grand concept remains strong. But to free market Wall Street and financiers, the Glass Steagall Act remained a moving target from day one to 1980 and on.
Returning to Geithner’s Public Private Partnership Investment Program (PPPIP), it would permit worthless or semi-worthless debt paper on the books of these “everything banks” to be bought up by taxpayer dollars at some 80 or 90 cents on the dollar, then turned over as assets for the very offshore hedge funds that have played such a major role in the unfolding of the financial debacle. Because the stakes are so great, and the president himself seems like he’s listening to the wrong people, notice must be taken, now. Promises were made to the American people to protect their assets.
This PPPIP is really an extension of Paulson’s TARP, throwing a trillion dollars in the air for hedge fund grabs. Meanwhile, the “investors” themselves would only put up a tiny fraction of the capital. The lion’s share would come from taxpayer money, pumped through the Treasury Department and the Federal Reserve. This is part of a continuing financial conspiracy. Also, to the extent that any private funds are railroaded into this black hole in financial space, it further dries up private funds for any kind of productive investment.
Its object is to force the government to come up with one giveaway program after another, which could easily end up creating massive hyperinflation.
Derivatives themselves were introduced in October of 1987, on the heels of a bust as big as the Depression of 1929, by none other than former Fed “Guru” Alan Greenspan. They amounted to nothing more really than a form of casino gambling. We can thank Greenspan and his derivatives for much of the financial devastation we see around us, particularly the AIG Financial Products disgrace.
The question now is why would we want to light a financial flame under derivative speculation with another trillion dollars from the PPPIP hedge fund bonanza, and in so doing set the global financial markets on fire? Will President Obama take hold of this situation and realize his presidency and his administration are dancing on the edge. To tie this nearly worthless mortgage paper to the economy, this paper tied to a derivatives market valued in the hundreds of trillions, dwarfing the market itself, would be to sink our economy and the world economy with it. Cut the cord.
What needs to be done is to look at the banks through the Glass-Steagall lens. Those parts of the banks that meet with Glass-Steagall standards should be protected, and be protected with available credit, not with “buy-offs.” The garbage securities should simply be frozen and saved for later inspection. We can’t bail out the garbage. It will bankrupt the United States. In fact, as Lyndon LaRouche suggests, this would be an excellent time to have a bankruptcy reorganization.
The alternative is a financial meltdown, followed by major citizen blowback, followed by the beginning of the end. And it ain’t gonna be pretty. Not for Obama, Pelosi, Frank, Geithner, Summers and the whole gang! So stop the PPPIP now!
Jerry Mazza is a freelance writer living in New York City. Reach him at gvmaz@verizon.net. His new book, “State Of Shock: Poems from 9/11 on” is available at http://www.jerrymazza.com, Amazon or Barnesandnoble.com.
available at http://www.jerrymazza.com, Amazon or Barnesandnoble.com.
Fred, the settlement rules would apply to the seller. Since the SEC doesn’t regulate foreign sellers, they wouldn’t have any power to force those foreign sellers to deliver shares to you, the buyer.
That’s why I’m calling for a new rule, where the buyers in America are not allowed to deal with foreign sellers that refuse to deliver.
You know, kind of like the rule the NASD came out with five years ago that was working before the SEC killed it and replaced it with SHO.
Just a suggestion to the moderators here, maybe beefing this site up with a separate message board would be a good idea? One where the users could create different threads based on separate content? Not to detract from the wealth of information that this thread contains, but I scrolled through it mainly to see what the public’s findings were concerning the Wikipedia test, and haven’t seen many posts that even reference that original question (towards the top there were a few, but none really answered what was asked of us to try). For what its worth, I tried to create an account at Wikipedia and edit the Naked Short Selling article with some quotes from the above list Patrick provided, but was unable to do so (there was a lock on the top of the page). But, I am a brand new user there, and according to the first post by Max Leverage;
“Are you misreading the protection policy? There’s a lock on the upper right hand corner of the article; if you click it you learn the page is “semi-protected”, that is, protected against edits from anonymous users and those who are not ‘autoconfirmed’ (for example, not a high enough edit count).”
…so I guess I attribute my inability to edit the article to the fact that my account is brand new.
Per the information given throughout all the other posts in this thread, it has been top notch and I have learned a lot from everything I have read, so I don’t want to sound like I am complaining about content. The issue I raise is relevance though, as all of these posts by Dr Jim DeCosta, iStandUp, Jim Hall, Fred, sean, ginger, and others all have done a wonderful service towards helping me understand the bigger problem of NSS, but none have really addressed the whole wiki issue. Just figured I’d float that idea, as it seems that there are more than enough individual users here who seem motivated to leave comments, I would imagine that this would lead to some very healthy conversations/threads with input from multiple people sharing their different points of view.
To add to my post above, my reason for recommending a separate forum for everybody is mainly because I believe it would ease up on Patrick or anyone else having to sift through all of the other comments to compile their evidence from this inquiry. I say again, the information listed here is powerful, but I doubt that Patrick needs any more explanations as to the definition of NSS.
Anon
Regarding the foreign broker loophole, I still don’t get it. Let me make my question clear. The rules we are discussing require a buy-in if the selling broker does not deliver in T+3. The buy-in is done by the buy-side broker (or the DTC), to protect his exposure, and he then bills the account of the foreign selling broker through the DTC. (Alternatively, the DTC can do the buy-in.) This is all done under US jurisdiction. If the foreign broker wants to maintain his account at the DTC, he must meet the buy-in cost. He can only prevent this by delivering the shares.
French President Sarkozy from today’s Washington Post:
“World growth will be all the stronger for being sustained by a stable, efficient financial system and by the kind of renewed confidence in the markets that would enable resources to be better allocated, encourage lending to pick up again and foster the return of private investment capital to developing countries.
We agreed in November that not one financial player, institution or product could be beyond the control of a regulatory authority. This rule must be applied to credit rating agencies, speculative investment funds… ”
and this too:
“We must reform the required disclosure standards and levels of prudential oversight for financial firms. Sadly, in many countries, this issue has not been getting the attention it deserves.”
http://www.washingtonpost.com/wp-dyn/content/article/2009/03/31/AR2009033103200.html
Add this to Russia and China sending us messages about out dollar, I think we can see quite a few global leaders recognize our tolerance of lawlessness on Wall Street. It’s not the free market if you’re being robbed at gunpoint.
HI,
I think, It is the mission of DeepCapture to show you, dear reader, that the financial world you inhabit, a world vouched-for by actor-spokesmen in dulcet Midwestern tones, a world inhabited by honest brokers looking after your money interacting through self-regulating exchanges overseen by diligent regulators, themselves overseen by elected politicians looking out for their constituents, themselves challenged by an adversarial free press maintaining a critical posture towards it all, is in fact a “world that has been pulled over your eyes, to blind you from the truth.” It doesn’t exist: it is a socially constructed reality designed to keep you complacent as you feed your savings to the machine.
i understand that it takes 13 days before dtc can buy-in a short position that has failed to deliver. true?
years ago i created fmcnet settlement in Canada between investment managers, dealers and custodians. at that time we were t+5. when i found out the uptick rule was repealed in the us i was flabbergasted. it was obvious the hedge fund managers would precipitate price free-falls for their own profit. of course all they needed to make really big money was the ability to ignore collateral requirements. so much money has been taken from pension funds 401’s mutual funds. i do believe this is the key to the credit problems. its an easy fix to not allow trades to go through until collateral has been established. DTC needs a good housecleaning. they have been turning a blind eye. usually there is an executive bonus structure based on revenue. if a dtc exec is getting say a $200,000 salary with a $2,000,000 bonus, their incentive will be to preserve that bonus. this is a constant throughout the industry. call it executive crack. it’s not going to be easy to change those habits.
I have also noticed censoring and bias towards financial institutions on Wikipedia. One must realize that the press in generated is owned by the same plutarchs that own the government and control the capital. Only independent voices provide a hint of the truth.
Your blog naked short selling is behind covered-up through manipulation of Wikipedia | Deep Capture: exposing the crime of naked short selling was interesting when I found it on Sunday by accident while searching for australia day activities canberra online. It’s funny what you could find on the internet sometimes. I’d have to agree on what you have to say, although it may seem like a wrong choice, but nontheless an interesting subject. Enough said, keep up the good work my friend!