NEW YORK (Reuters) – U.S. government efforts to revive a sluggish economy have cheered markets since March, but some of the most successful investors around worry these moves may only make the bad times linger.

Several hedge fund managers at an investment conference this week warned that a number of policy moves by the Obama administration, from its Chrysler intervention to Treasury’s myriad bank bailouts, will only extend the recession.

It would be better, they said, if the government let markets move unimpeded, causing pain now but clearing a path for sustainable recovery.

“The basic strategy appears to be to try to bring us back to 2006 by propping up asset prices and reflating the popped credit bubble, subsidizing bank creditors and shareholders, and delaying needed bank recapitalizations while hoping for an economic recovery,” Greenlight Capital’s David Einhorn said at the annual Ira Sohn Investment Research Conference.

Wall Street has been pilloried during the past year for making big gains as markets crumbled, and blamed for driving companies into the ground and accused of standing in the way of the recovery. U.S. President Barack Obama last month chastised several hedge funds as “speculators” when they declined to support his Chrysler restructuring plan.

The scolding prompted these fund managers to surrender, but the episode made investors less certain about the security of their interests.

“It is a very bad idea for governments to create arbitrary and unfair outcomes, or outcomes resulting from the passions and whims of the government rather than from the law, just because they have the power to do so,” said Paul Singer of hedge fund Elliott Management.

MidAmerican Energy Chairman David Sokol, who runs a utility that also owns the second-largest U.S. real estate brokerage, said short-term fixes could came back to haunt the U.S. economy.

“Government intervention could draw this out much further than is necessary and is useful, although for some areas it may feel somewhat good in the interim,” said Sokol, a contender to succeed Warren Buffett as head of Berkshire Hathaway Inc.

Several of the Ira Sohn speakers warned massive government spending today could lead to rampant inflation.

Peter Schiff of Euro Pacific Capital, who in 2006 publicly warned the subprime crisis would drag down financial markets, said Obama’s policies will only re-inflate the credit bubble.

“As any drug addict knows, if you stop using drugs you will go through withdrawal. Government is making the situation worse,” said Schiff. “We don’t need any more stimulus. We are suffering from the stimulus we have already been given.”

He joked years of misguided U.S. fiscal policy has created a Ponzi economy, where new Treasury bonds must be sold to repay existing investors just to keep Uncle Sam solvent.

“I don’t know why we have Bernie Madoff in jail,” Schiff said. “We should appoint him secretary of the Treasury.”

Einhorn observed the U.S. budget deficit has grown to 13 percent of GDP, not including the trillions of dollars of potential losses guaranteed under the government’s bailout plans. Long-dated U.S. bonds, he said, are already anticipating higher rates inflation

When it comes to bolstering banks, though, the Obama administration may be doing too little.

Einhorn, who correctly predicted Lehman Brothers needed a lot more capital to cover real estate losses, this week said U.S. banks are undercapitalized even after raising $75 billion of equity following the so-called stress test.

The government should induce investors to swap debt for equity and push banks to recognize their losses on mortgages and other debts, he said. Yet these measures would generate losses and the government has not forced the issue.

“The Obama administration disappointingly seems to be following the same path as the Bush administration,” he said.

(Additional reporting by Herbert Lash)

It’s just a matter of keeping the unlawful act in focus. In a theft, the important fact is that someone snatched someone else’s property. We don’t need to get involved in the details of how the lock was picked or the tools that were used.

When we use the term “abusive naked short selling”, we can’t avoid getting into those details. And that is just what the perps want. If we simply focus on the unlawful act of causing a sale to occur with no intention of delivering, the violation is clear. And the perps can’t deflect the dialogue into the underbrush.

Keep up the good work.

KEY CONCEPTS IN REGARDS TO ABUSIVE NAKED SHORT SELLING (ANSS) FRAUDS

Dr. Jim DeCosta

1) The fraud known as abusive naked short selling (ANSS) went into high gear back when the DTC (Depository Trust Corporation) “volunteered” to act as the surrogate “legal owner” of all shares held in “street name” ostensibly to enhance the efficiency of the clearance and settlement process. Their nominee “Cede and Co.” became the “legal owner” or “owner of record” of all shares held in “street name” as referenced on the corporate transfer agent’s books.

2) This effectively blindfolded a corporation’s transfer agent from performing his “anti-counterfeiting policeman” role as “Cede and Co.” owned pretty much everything in sight and the TA was left with no visibility of the shenanigans going on behind the scenes at the secrecy-obsessed DTCC and their DTC and NSCC subdivisions.

3) Since the purchasers of shares were no longer the “legal owner” of that which they purchased they became relegated to being the mere “beneficial owners” of the securities purchased. “Cede and Co.” would “legally own” the shares for the benefit of (FBO) its “participating” clearing firm that in turn “owned” them FBO their client the investor. A “fiduciary” relationship was thus created between this surrogate “legal owner” and the “beneficial owner” that purchased the shares. Unfortunately for investors mere “beneficial owners” do not have the visibility of the behind the scenes actions at the NSCC like the “legal owners” enjoy. These “blindfolded” investors are forced to place their TRUST in the DTC to “act in good faith” and represent the interests of the purchasers of these shares while acting as a fiduciary in this surrogate “legal owner” capacity. History has now clearly shown us that neither the DTCC nor the DTC nor the NSCC nor many of their abusive “participating” market makers and clearing firms were up to this “acting in good faith” concept. The ability to re-route literally trillions of dollars of previously blindfolded investors’ money with very little risk of detection or meaningful penalties was just too tempting to pass up on.
4) The “beneficial owner” of securities was deemed by law to be what is referred to as a “security entitlement holder” as opposed to the “legal owner” of that which he purchased. What the investing public that hold their shares in “street name” often fail to comprehend is the tricky nature of legal “entitlements”.

5) The authors of UCC Article-8 wanted to send a “reminder” to the DTC “participants” and their nominee “Cede and Co.” that just because they were acting as the surrogate “legal owner” of all shares held in “street name” for efficiency purposes only they were never to LEVERAGE this form of public trust over the investors that they have the congressional mandate to protect. After all, it was the “security entitlement holders” that bought and paid for the shares (that may or may not have ever been delivered). As it turns out mere “security entitlement holders” have absolutely no clue as to whether or not that which they purchased ever did get delivered. The test begins; will abusive DTC participants try to LEVER the “legal owner” role and their superior view of the clearance and settlement system that the regulators and investing public entrusted them with?

6) UCC Article 8 made it clear that it was the investor clients of the various clearing firms making up the NSCC subdivision of the DTCC that were entitled “to exercise all of the rights and property interest that comprise the securities that they purchased” and not the NSCC participating clearing firms. The DTC promised that they would never think of LEVERAGING the fact that they were technically the “legal owner” of that which others purchased. Well, history seems to indicate otherwise as the “legal owner” of these securities ended up doing pretty much anything they wanted to with their “possession”.

7) UCC-8 clearly spelled out the various roles of the “legal owners” of securities versus those of the “security entitlement holders”. If the “entitlement holders” wanted to attain the “legal ownership” of that which they purchased all they had to do was to file an “entitlement order” demanding the delivery of the paper-certificated version of ownership (a share certificate) with their name inscribed on it. As the investors in corporations undergoing abusive naked short selling attacks will readily attest the DTCC often refuses to honor these “entitlement orders” in a timely fashion because to do so would often involve the NSCC management buying-in the delivery failures of their abusive bosses/participants. This process would drive share prices up and counter the share price depressant effect of “security entitlements” which those with massive preexisting naked short positions rely upon. The absolute refusal to execute buy-ins in order to service an “entitlement order” by the surrogate “legal owner” of shares obviously would be bordering on a criminal act. An unconflicted surrogate “legal owner” acting in a fiduciary capacity would obviously not facilitate the counterfeiting (via the NSCC’s SBP) of that which it has the mandate to “safeguard” and act as the “legal owner” of.
UCC Article-8-501 mandated that the clearing firms of investors that didn’t get delivery of the securities they purchased by “settlement date” (T+3) must nevertheless credit the investor’s account with “security entitlements”/IOUs/”long positions”/”phantom shares” representing the yet (if ever) to be delivered shares. Make a mental note as to the naïveté of this default assumption that ALL delivery failures on Wall Street involve securities that are about to arrive any second due to an unforeseeable but “legitimate” delay.

9) UCC Article -8 also mandated that the clearing firms holding these “security entitlements” treat their clients/”entitlement holders” as being entitled to exercise ALL of the rights and property interest that comprise the security even though they never got delivered and even though that which was sold may have never existed in the first place. OOPS!

10) Note the insanity here IF those shares sold whose delivery was theoretically “delayed” weren’t “delayed” at all but never existed in the first place and are not about to “arrive any second”. If that were to happen it’s too late because the purchaser of these “nonexistent” shares i.e. their “entitlement holder” already got permission to sell them as if they did arrive due to the wording used in 8-501.

11) Faulty presumptions about the imminence of delivery now allowed “counterfeit” shares to enter the system. The door was now wide open for securities fraudsters to take advantage of this “default assumption” regarding an imminent delivery and establish massive naked short positions by simply refusing to deliver the (nonexistent) securities they previously sold and thereby literally drown U.S. corporations with share price depressing “security entitlements” while claiming to be “injecting” much needed “liquidity”.

In regards to your question: “What happens if a long investor unknowingly sells his/her long shares which are only “security entitlements” BEFORE the FTD is cured?”

Assume that an NSCC participating clearing firm has 10 million Acme shares in its NSCC participant “shares account”. Let’s also assume that it sends out monthly statements “implying” that it is “holding long” 30 million shares of Acme for its clients. It is thus “naked short” 20 million shares.

If the phone rings and a client wants to sell his Acme purchases by default he will be determined to be one of the lucky ones that did get delivery of that which he purchased. That’s the beauty of “anonymous pooling” to cover up frauds. If there were a “run on the bank” scenario in which the purchasers of all 30 million Acme shares at that broker wanted to sell their shares simultaneously it still wouldn’t matter.

Since 90% of people hold their shares in “street name” because it’s so “handy” that broker could always borrow some from across the street and repay the borrowing later. The “fraternity brothers” at the DTCC take very good care of each other. I’ll post a blurb from book #9 in a second re: the tricky nature of “security entitlements”.

Above you spoke about the “security entitlements”.

What happens if a long investor unknowingly sells his/her long shares which are only “security entitlements” BEFORE the FTD is cured?

Do these shares somehow “magically” become “cured” because these shares somehow get lost in the anonymous pool of stocks?

One anomaly that I notice recently in writing my 2nd draft is that Wall Street tells us that the SBP program “cures” the Failure to Receive.

The question that comes to mind is:

How is it possible for a buyer to RECEIVE the stock they purchased when their money was NEVER USED TO BUY STOCK?

You said:

“My point is that we should not be accusing anyone of ANSS. We should not use the phrase “abusing naked short selling”, or its abbreviation. That term does not help our cause. We should emphasize that the perps are fraudulently selling shares with no intention to deliver. That’s what is already illegal under current law.”

I am not sure what you mean by “That term [ANSS] does not help our cause.” But as I have stated before the phrases “Naked Short”, “Naked Shorting” and other such “NAKED” phrases do not communicate to the common man and woman investor that a crime has been committed against them.

The following naked short cartoon illustrates the essence of what is communicated to the common man and woman by these “NAKED” phrases – naked men:

http://media.npr.org/blogs/globalpoolofmoney/images/2008/09/naked_2.jpg

On the one hand I think I agree with your statement, yet on the other hand I disagree with your statement….

It seems to me that there are at least two audiences that we need to communicate with:

1 – Common Man and Woman Investor who do not understand the crimes being committed against them.

2 – The Courts, the lawyers, the SEC, the Financial Self Regulators in the legal system.

These two audiences require us to communicate with them in different ways. The Common Man and Woman Investor does not understand these “Naked” phrases, yet those groups in the legal system require the use of “Naked” phrase because these phrases are part of the financial industry’s standard vocabulary.

Dr. Jim DeCosta excels in communication with the legal system. And for those willing to enter into the struggle to climb the required learning curve, Dr. Jim DeCosta written explanations are an excellent learning tool.

On the other hand, if I were to hand most of Dr. Jim DeCosta’s detailed explanations of “The Wall Street Counterfeit Machine” to the Common Man and Woman, their eyes would probably roll back in their heads after reading the phrase “NAKED SHORT” the first time. The visual image of a “Naked Man” in their mind created by the phrase “Naked Short” would be so absurd their mind would shut down.

I am here to study and learn from everyone including Dr. Jim DeCosta with the hope that I can learn enough to create some type of explanation for the Common Man and Woman investor that will clearly show them that financial crimes are being committed against them.

So if what you mean by “That term [ANSS] does not help our cause.” is that the Common Man and Woman Investor will not understand this term ANSS, then I agree. But I do not agree that we should never use this term.

http://www.latimes.com/business/la-fi-briefs23-2009may23,0,3541132.story

They just aren’t very quick to act are they?