The SEC Declares Emergency, and Joe Nocera Yammers On
Folks, today was history in the making. The Deep Capture thesis, which is that miscreant short-sellers have put the American financial system at risk, can no longer be in doubt.
First came the stunning announcement that the SEC has sent subpoenas to 50 hedge fund managers as part of a major investigation into rumor-mongering and illegal short-selling of Bear Stearns and Lehman Brothers. Then came the even more remarkable announcement from SEC Chairman Christopher Cox that he is instituting an “emergency action” requiring traders to pre-borrow stock before shorting all “substantial” financial companies.
Of course, there is a some bitter irony here. Over the years, hundreds of public companies have been grievously wounded by hedge funds who sell phantom stock (ie. stock they have not borrowed), and the SEC has done nothing. Now Wall Street finance companies, including the very investment banks whose prime brokerages facilitated the creation of phantom stock, find themselves victimized by phantom stock, and the government decides it’s time to do – or at least, say – something about it.
We’d be glad to see the big banks suffer their Shakespearean fates if the SEC were to rescue the hundreds of innocent victim companies who have been hollering about the phantom stock problem for years. We’ll see if the SEC extends the emergency action to the rest of the market, as Mr. Cox suggested it might.
Either way, all the talk of an “emergency” suggests that the SEC recognizes just how big the phantom stock problem has become. Obviously, it sees the catastrophe of Bear Stearns as a clear-cut case of short-seller abuse. A well-timed false rumor, presented as fact by CNBC, combined with phantom stock sales, took the bank down. Now, the same people are using the same tactics against Lehman Brothers. Fannie and Freddie are on the brink. And experts say there are 300-plus other publicly traded companies – including 50 finance companies — getting similarly clobbered.
An “emergency,” indeed.
All of which makes certain journalists look like bona fide clowns. For years, a clique of influential reporters—I call them “the Media Mob”–have insisted that short-sellers do no wrong and that phantom stock is not a problem. On Friday, Deep Capture noted that the media’s hedge fund apologists, including Joe Nocera of the New York Times, had shied away from commenting on the collapse of Bear Stearns.
The next day, Joe Nocera of the New York Times commented on the collapse of Bear Stearns. Predictably, he argued that short-sellers had nothing to do with it. He wrote, “it takes some gall for Bear Stearns to blame short sellers for its failure…what Bear Stearns management fails to mention is how much of its capital was tied up in subprime sludge.”
The sludge, Joe, is not the point. As your close friend Jim Cramer has described (behind closed doors, if not on CNBC), “the game” of market manipulation is to find a weakness and amplify it out of all proportion to reality. It is one thing to say that Bear’s balance sheet was weak (I agree, Bear was a piece of crap). It is quite another thing to get a compliant television reporter (in this case, Cramer crony David Faber, on CNBC) to spark a run on the bank by reporting, as if it were fact, the completely false and utterly catastrophic news that Goldman Sachs had cut off Bear Stearns’ credit – and to do that while somebody’s selling millions of shares that do not exist.
As we said last week, the SEC shouldn’t just subpoena the hedge funds: It should subpoena CNBC’s David Faber. He says a hedge fund “friend” gave him that information about Goldman cutting off Bear’s credit. That hedge fund “friend” very likely broke the law. The SEC needs to find out who he is. Journalists have no constitutional right to cover up crimes under the guise of protecting sources.
But short-sellers don’t commit crimes. So says the Media Mob. Why do they say this? The kindest explanation is that Nocera and crowd honestly believe that it is simply too dangerous to criticize shorts because shorts are so absolutely “vital” – the only people able to provide negative information to the markets and the media. This worn notion fails, of course, to make the distinction between law-abiding short-sellers who provide real analysis and crooks who circulate scurrilous lies while churning out phantom stock.
It also contains a stunning admission: that the financial media is incapable of conducting financial research on its own. Journalists consider short-sellers “vital” sources of negative information because journalists do not have the wherewithal to look at a balance sheet and determine for themselves whether something might be wrong. Baffled by all those numbers, the journalists turn to short-sellers (and sometimes even convicted criminals) for help. Which is another way of saying that our financial media is written in large part by financially motivated Wall Street sharks–a real abomination, when you think about it.
But in the case of Nocera, there is something even more sinister at play. To understand Joe Nocera’s positions on short-selling, it is necessary to understand the crowd he runs with. It is a clique of journalists and short-selling hedge funds, most of whom are connected in some way to CNBC’s Jim Cramer.
Some journalists challenge power; this clique of journalists covet it. They desire nothing more than to be players in “the game.” (Some are quite blatant about this; witness Nocera pal Herb Greenberg, who sells “forensic” research to short-sellers while using them as sources in his CNBC reporting).
These journalists defend their short-selling friends at all costs. They routinely pat each other on the back and pimp each others’ books. They quote each other in their stories, and snicker almost out loud as they attack the same public companies, always parroting the same financial analysis, delivered to them by the same small group of dubious hedge fund managers.
This is an old boys and girls network tighter than anything on Capitol Hill – and infinitely more saddening, because the media’s not supposed to be this way. .
You could see this network at work in the case of Gradient Analytics, a research shop that publishes blatantly false information for short-selling hedge fund managers, many of whom are connected to Cramer. For awhile, Jon Markman, a former editor for Cramer’s website, TheStreet.com, was running a dodgy hedge fund out of Gradient’s back offices, while one of Gradient’s managers was accumulating multiple identities and social security numbers to conceal his activities.
At the same time, the Media Mob, including CNBC’s Herb Greenberg, who was Markman’s former co-editor at TheStreet.com, churned out stories containing Gradient’s false information about companies that also happened to be victimized by phantom stock – and still more stories labeling anyone who mentioned the words “phantom stock” or “naked shorting” as “loony” or “seeing UFOs.” A former Gradient employee testified under oath that Herb conspired with Gradient and a hedge fund manager named David Rocker so that Rocker could illegally profit from his stories on CNBC and Marketwatch.com.
When the SEC launched an investigation into Gradient, and issued subpoenas to Jim Cramer and Herb Greenberg, the Media Mob rose up in their defense. Pathetically, the SEC allowed itself to be terrorized by this mob, and closed down its investigation before enforcing the subpoenas. When I began a story about this for the Columbia Journalism Review, the Media Mob turned on me. Joe Nocera called my editor to defend Herb and pressure CJR to kill my investigation. (This was unheard of; working journalists do not make quiet calls to try to have stories killed).
Then Nocera, Herb, and their friend Dan Colarusso, of the New York Post, sat on a famous panel at the Society of Business Editors and Writers. The panel’s stated mission was to defeat “business journalism bashers” – namely, Deep Capture reporter Patrick Byrne and Bob O’Brien, a.k.a. the “Easter Bunny,” a devastatingly effective blogger who had been writing about the media’s failure to cover the problem of phantom stock.
A Deep Capture ally snuck into Nocera’s panel and got it all on tape (see “The Story of Deep Capture” for the recording). Colarusso vowed to “crush” Patrick and the Easter Bunny with “barrels of ink.” Herb said that he wouldn’t write about phantom stock because it’s “not what I do” – even though a majority of the companies he had written about were phantom stock victims. Nocera, meanwhile, said that naked short-selling (phantom stock selling) “makes his eyes glaze over” and he “can’t be bothered” to cover it because “life is too short.”
Maybe so, but before and after that panel, Nocera wrote columns insisting that short-sellers do no wrong and phantom stock is not a problem – even though he had been presented with heaps of data proving otherwise. Nocera’s columns, widely circulated and praised by the Media Mob, contained no data and not a single reference to a credible source. One of his columns quoted, as an expert — Herb. Another column quoted the expert Roddy Boyd, then a reporter for the New York Post.
I know why Nocera quoted Roddy – Roddy’s a card-carrying member of the Media Mob who has worked closely with criminals doing dirty work for Cramer-affiliated short-sellers. (See “The Story of Deep Capture” for more on this.) Still, this was something amazing: the New York Times quoting a New York Post reporter as an expert! You’d think some editor somewhere would have wondered about this. (Roddy Boyd, now with Fortune, is, not incidentally, one of the few reporters still insisting that short-sellers of Bear Stearns and Lehman have done no wrong).
Last month, after we named Nocera in “The Story of Deep Capture,” Nocera wrote a column in which he was critical of Milberg Weiss, the law firm that was caught paying kickbacks to plaintiffs who filed bogus class-action lawsuits against public companies. He wrote, “I’ve long thought that [Milberg] ran a kind of extortion racket, filing class-action lawsuits against companies whose stock had dropped – without a shred of evidence that any wrongdoing had taken place – and then torturing them with legal motions until they settled.”
What Nocera did not mention (though we made it clear in “The Story of Deep Capture,” which Nocera had read) is that Milberg Weiss coordinated its attacks on public companies with short-selling hedge funds, skeezy “independent research” shops (most notably, Gradient Analytics) and Nocera’s media friends.
Indeed, a Gradient timesheet, obtained by Deep Capture, shows that while Gradient was allegedly colluding with Herb Greenberg, its employees were getting paid by the hour to work for Milberg Weiss. .
But Herb is a friend of Nocera, Gradient’s short-selling clients are friends of Herb – and well, you know how it works. These journalists don’t get their friends in trouble. Indeed, check their work – not one of them, in all their years, has ever identified, or even hinted at, a single instance of short-seller wrongdoing.
In his most recent article apologizing for the short-sellers who destroyed Bear Stearns, Nocera refers extensively to one of our favorite hedge fund managers, Jim Chanos, of the aptly named Kynikos (“Cynical,” in Greek) Partners. This is the fellow who provided a rent-free beach mansion to a hooker employed by Elliot Spitzer, who was Jim Cramer’s college roommate. Chanos is also the fellow who helped Bethany McLean of Fortune magazine break the Enron story, which partially explains why his media fans seem to believe he can do no wrong. Everything he says–including his reassurances that phantom stock doesn’t exist–is reported as fact.
So now, Nocera reports that Chanos believes that, in the case of Bear Stearns, there were no crimes committed by short-sellers. And, according to Nocera, Chanos “knows what he’s talking about. In the last days of Bear Stearns’ death spiral, a top executive called Mr. Chanos, who was not short the stock but had been a client for years. The executive pleaded with him to go on CNBC and tell the world that all was well at Bear Stearns…Mr. Chanos declined the request.”
This is at least partly false. Good sources tell us that Chanos was short Bear Stearns, though he may have already cashed out “in the last days” of the “death spiral.” As for that “top executive” at Bear Stearns, he seemed to be doing his job by asking people to vouch for his company. Surely, he has nothing to hide. Why does Nocera keep him anonymous? Did Nocera check to see if this person even existed? Well, anything’s possible.
In any case, it is entirely misleading to suggest, as Nocera does, that Chanos really believed that Bear Stearns was not a victim of rumor-mongers. In fact, Chanos believed that it was quite possible that hedge funds were circulating false information about Bear Stearns.
We know Chanos suspected as much because he said so at a recent conference of the Securities Industry and Financial Markets Association. Clearly trying to distance himself from this scandal, Chanos said, “I would urge our regulators at home to examine the sources of these [rumors], whether there’s evidence that people are trading on information they know to be false and inducing others to trade on information they know to be false, which is against the law and always has been…”
On CNBC, Jim Cramer is similarly insisting that illegal short-selling should be stopped. This is a far cry from a year ago, when he said the issue is the most “falsely overweighted topic on Wall Street,” and phantom stock selling is something that happens “very rarely.” Today, he said “hundreds” of companies have been affected, adding, preposterously, that he has long been on a “crusade to bring back honest short-selling.” Cramer, like Chanos, seems intent on distancing himself from the scandal that they helped cover up for the past three years.
Message to Media Mob: The rest of you should also start to distance yourself from this scandal. Do it quickly – before somebody exposes the enormous fraud that you have perpetrated on the American public.
For the complete, very long tale of how a clique of journalists helped cover-up a massive crime on Wall Street, see “The Story of Deep Capture.”
Posted in The Mitchell Report |
July 15th, 2008 at 6:06 pm
Follow the link and “SIGN” the petition demanding the SEC to act accordingly on stock market reform, addressing Naked Short Selling (NSS) and how this illegal activity is contributing to the destruction of our economy!!! Just under 7,000 signatures…let’s establish a high yet achievable GOAL: ONE MILLION signatures!!!
http://www.petitiononline.com/mrktrfrm/petition.html
Please SPREAD THE WORD!
virtualdrew
Founder of the SecretStockSociety.com
July 15th, 2008 at 6:08 pm
Congratulations to you for your strength of character to see this through. It is a sweet day when you can toast to a victory.
There was a clip of a freudian slip by a media person that refered to Reuters News as Neutered News which I hope you get to see.
Best regards,
July 15th, 2008 at 6:54 pm
More on that hypocite Cramer…
There’s been a massive amount of ink spilled about Regulation SHO, which forces short-sellers to deliver shares that have failed. That’s despite the fact that short-sellers always had to do this before the rule, which is a non-event other than a rallying cry for aggrieved shareholders who own the wrong stocks.
….
I continue to think that short-sellers should be considered blameless in almost every case that I have ever seen involving a decline. I have heard the alibi endlessly. I always say that if a company under the stock is any good at all, the shorts will be forced to cover, and the stock will go up even more than it should.
Don’t be deluded by the Regulation SHO advocates. They are often well-meaning, but they don’t know how the process works. They are vocal; this article will antagonize them, and I will be savaged for the common-sense thread exposed here.
http://www.thestreet.com/p/rmoney/jimcramerblog/10295001.html
July 15th, 2008 at 7:21 pm
Have any of these 50 subpoenas been posted online (in redacted form or otherwise)? Thanks.
July 15th, 2008 at 7:26 pm
I dont like Cramer but if he was up to his eyeballs in the fall of Bear Stearns why was he telling watchers of his CNBC show to NOT sell the stock?
July 15th, 2008 at 8:29 pm
So, it wasn’t irresponsible risk taking and poor management and a failure to be competitive that bankrupted Bear Stearns - it was short sellers. Wow. Do you guys also believe in the tooth fairy and Santa Claus?
80% of new businesses - which are not traded on any exchange - fail in the first five years. I’m sure if you lot got your conspiracy theory hats on, you could come up with a way to blame this on short sellers too!
July 15th, 2008 at 10:26 pm
Nice article.
For all you nay sayers that claim NSS isn’t a problem, answer me this.
WHY DID COX SAY NO MORE NSS ON:
BNP Paribas Securities Corp. BNPQF or BNPQY
Bank of America Corporation BAC
Barclays PLC BCS
Citigroup Inc. C
Credit Suisse Group CS
Daiwa Securities Group Inc. DSECY
Deutsche Bank Group AG DB
Allianz SE AZ
Goldman, Sachs Group Inc GS
Royal Bank ADS RBS
HSBC Holdings PLC ADS HBC and HSI
J. P. Morgan Chase & Co. JPM
Lehman Brothers Holdings Inc. LEH
Merrill Lynch & Co., Inc. MER
Mizuho Financial Group, Inc. MFG
Morgan Stanley MS
UBS AG UBS
Freddie Mac FRE
Fannie Mae FNM
???
If it isn’t a big deal, WHY NOT just let the shorters sell a bunch of shares that don’t exist and finish off those companies. No biggie. I Guess COX believes in the tooth fairy also. OMG someone call 911, Cox has drank the kool aid!!
Maybe he sees the NSS vultures circling and he is trying to keep them away in order to give the companies a chance to get a handle on their problems.
If he can do it for them, He damn sure better do it for all the other companies out there!
July 15th, 2008 at 10:50 pm
size, if i believe the company is crap (in this case, bear stearns), i would short it too. no doubt about that. question here is, these people manipulate markets (they create opportunities for themselves to become insiders front running on crafted “facts or rumors”. this is criminal & worse than insider trading (which is insiders front running on “facts”).
JP Morgan’s Dimon said: “If someone knowingly starts a rumor or passes on a rumor, they should go to jail…This is even worse than insider trading. This is deliberate and malicious destruction of value and people’s lives. They shouldn’t go to jail for a short period of time. So if I was the SEC I’d find out who made the money and I’d investigate–emails, phone records, you name it–and I’d find out….There’s enough smoke around that I think there should be a full investigation…”
July 16th, 2008 at 2:42 am
So the US Government is going to pump and dump Fannie and Freddie stock under the guise of a rescue/bailout,and like all stock promoters, the US Government doesn’t want to waste its precious promo budget feeding naked short sellers who can’t find anything to actually borrow and sell short yet they will get in the way of progress “just because they can”…….Naked Short selling Fannie, Freddie, (the dead) Bear, Lehman,UBS and all the other listed financial equities that Cox’s SEC has finally admitted ‘is a huge problem”. Anyone that been following along and isn’t in a coma or doesn’t work for the media mob has known that the serious aspects of NSS were always leading to systemic risk to the financial system. In the pre-shocks leading up to this present global credit Tsunami the cracks in the system were ‘papered over’. Evidently,there is insufficient paper remaining in the coffers to fill the void that has now become a massive, festering ‘grandfathered’ sore on an epidemic scale.
SEC, FASB, FINRA, NASDAQ, ALL of the players in this epidemic are well known.
THERE IS NO MYSTERY AS TO WHERE THE RESPONSIBILTY LIES. THIS DOES NOT REQUIRE THE ARREST AND INCARCERATION OF MORE THAN 12 INDIVIDUALS. (IT WAS 15, BUT THANKFULLY 3 ARE ALREADY IN CUSTODY).
July 16th, 2008 at 3:36 am
Irony…let’s see if there are some prosecutions to deter future abuse and punish past transgressors, not just a crisis response to prevent a systemic collapse, as important as that is. Certainly Cox and the SEC are believers in what DeepCapture has been exposing. Thank you Patrick Byrne, Mark Mitchell, Judd Bagley, and the many supporters who have worked so hard to bring this story out.
July 16th, 2008 at 5:13 am
1) When I sell stock short, the broker (to the best of my knowledge) borrows the stock first, then delivers it to the broker representing the buyer in my short sale. I request that you explain how a short sale with phantom stock is accomplished.
2) You construe the stunning admission that the financial media is incapable of conducting financial research on its own.
I thought the essence of journalism was reporting what one learns from sources and public events. I am not aware that it was ever expected that financial journalists analyze financial statements of companies to find weaknesses.
July 16th, 2008 at 6:54 am
Gollum..
1. You lose your argument the minute you say “to the best of my knowledge”. You have NO IDEA what that firm does at the back office level. The firm could take your order, take your Commission, and then find that the shares they located are no longer available. At that point they decide, buy you in or sit on the fail. Most Brokers sit on the fail.
2. Financial journalism has become lazy and have become reliant on others to do their research for them. It is because of that laziness that today’s financial journalist are easily manipulated by these funds they rely so heavily on for stories. The independance of a story is lost when you need that source for your next, and next, and next paycheck.
July 16th, 2008 at 7:14 am
robbed,
Has it occurred to you that Jamie Dimon has a dog in the race? That he’s saying what he’s saying for public consumption and that you’re naively lapping it up? After all, the man is seen as a classic vulture now that he picked up Bear Stearns for next to nothing and got you, the tax payer, to backstop the acquisition’s debt. Why don’t we ask Jamie to pay more for the stock since, by his own admission, the stock was beaten down by malicious rumour mongers and the fair value is above what he paid for it? What do you suppose his answer will be to that request? Also, he doesn’t want the stock price of his own company to decline because he gets a large part of his compensation in company stock.
Think about it. The guy wants people jailed for gossiping. First, If I hear a rumour, I want to know its source before I make a decision. Don’t you? I assume that most people are at least that intelligent. Second, if you merely repeat that you heard a piece of information, you’re at risk of going to jail? You don’t know if it’s a rumour or not if you hear it third hand and you certainly don’t know if the person who started disseminating this information has malicious intent. Yet, you can be jailed for simply mentioning what you’ve heard? Does that make sense to you?
Further, note that he’s only talking about negative information. What if a rumour goes around that there’s something good happening with the stock and the stock pops up? Do those people also go to jail? Shouldn’t it be illegal to own a stock in your portfolio and then go on television singing its praises? For that matter, shouldn’t it be illegal to voice any opinions at all? After all, all opinions can be construed as rumour mongering.
Does any of this make any sense to you? I think what we need is some critical thinking here.
The thing is, nobody cares whether stocks are going up or down. The “critical to the financial system” claims and hand wringing by the Fed and Treasury are just hysterical claims made by Treasury and the Fed to increase their power and are no different from the rumour mongers you dislike so much. After all, if the financial markets will collapse without their intervention, then they should have more power, no? That’s precisely the claim the Fed is making right now.
People who try to manipulate markets are just assholes. But most rumours are started because someone genuinely believes that something is happening. Most rumours that have enough legs to effect the stock have that effect because there is enough supporting information to make them believable. What the SEC is doing now amounts to a witch hunt to mollify the ignorant masses. And who is fanning the flames of the witch hunt and pressing the SEC to engage? Why, the very people who stand to gain from it. Let’s jail them instead.
July 16th, 2008 at 7:30 am
Patchie,
you are just as ignorant.
Specialists and registered market makers are not required to locate and never have been because they provide liquidity. So, if YOU short the stock and it fails, you have to buy-in, but if the specialist can short all he wants. Worse, he will execute your market buy order way up because if there’s nobody selling their long position and no shares to borrow, he’s the only seller. Without competition, he’ll force market orders to buy 8% up on the day (I’ve seen more too, but 8% is egregious enough).
You guys are all getting your panties in a twist over this “phantom shares” business because poor company managers blame short sellers instead of their own incompetence for their failures. The reality is that the “phantom shares” provide liquidity and ensure that people who are buying the stock aren’t getting their faces ripped off (paying an artificially high price). Without them, there will be more asset bubbles. In fact, asset bubbles are more likely in markets where shorting is impossible - like housing. Then you lot get your panties in a twist about that.
Notice how all this boohooing and finger pointing only comes from crappy, uncompetitive companies? Never from Microsoft, though. Hmmmm….
Makes you think.
Or, likely, not.
Incidentally, the financial press usually can’t do any analysis because I’ve yet to meet anyone in the financial press with either an economics or finance degree. They usually just don’t know HOW to do the analysis.
July 16th, 2008 at 12:02 pm
Size (or Gary, or Floyd, or Jim, or David E., or David R., or paid or unpaid accomplice thereof) -
Never mind. I think I made my point.
July 16th, 2008 at 12:35 pm
http://www.cnbc.com/id/15840232?video=795065904&play=1
I really enjoyed this. What a reversal from Cox.
I especially like how it exposes the quality or lack thereof of the reporting over at CNBC. Do they have any credible reporters or talking heads?
July 16th, 2008 at 1:10 pm
actually, I am not a fan of Jim Cramer, but he nailed the issues right on the button. The obvious solution to this problem is buying in fails, without exception. You can’t deliver what you sell, too bad - you’re bought in , the trade is settled. You wanna play the game? You need to have what you are selling in hand or take chances with getting bought in. We have been screaming about this for 6 years, and Cox still can’t get it right.
You don’t just protect some companies - you protect all, and he ALREADY has the tools to enforce. BUY IN THE FAILS - PERIOD. DTC, EX-CLEARING, whatever…buy ‘em in.
July 16th, 2008 at 1:12 pm
I can’t remember where, but somone commented on one of the posts that while Byrne thougth Gasparino was a good guy, the poster didn’t agree.
I have to say I think he’s on the dark side too!
http://www.cnbc.com/id/15840232?video=795007096&play=1
July 16th, 2008 at 1:41 pm
Shock and Awe, I am that poster and I won’t say “I told you so” but I did. He is a scuzbucket trying to play the devils advocate, but he is even worst that Herb Greenbelly.
July 16th, 2008 at 2:44 pm
“Never mind. I think I made my point.”
Yes, you did, Jimmy Cayne. Perhaps you’re looking for another company to run into the ground?
July 16th, 2008 at 3:22 pm
Please look at the member profile for Floyd Schneider aka “The Truthseeker” on Silicon Investor. At first it looks like Floydie took down all his posts, just days after his brother Roger outed him here as a “dishonest person” because the member ID “The Truthseeker” is gone. But what Floydie actually did was change his posting name, and all his posts dating back to 1999 are changed to reflect the identity switch. How can Silicon Investor allow this and what could possibly be the reason?
July 16th, 2008 at 4:40 pm
I just found some time to have a look at the original SEC news release:
http://www.sec.gov/news/press/2008/2008-143.htm
After reading various media coverages about it, reading the original was a shock.
From the media, I read and heard that the SEC will stop short selling. First for several stocks in the financial sector, then for the complete market.
After I read the official news today, my first thought was “toothless tiger”.
Thinking about it for a minute, my next thought was “tamed tiger”.
Cox is talking about *unlawful* NSS, threatening the stability of *financial instituitions*.
What about all the other firms, that are threatened by NSS?
For me, it sounds like: Hey guys, stop attacking us. Let’s continue to attack the real enemy together, like we did in the past: All The Others.
And what is this emergency rule?
Soft as white bread:
“The SEC’s order will require that anyone effecting a short sale in these securities arrange beforehand to borrow the securities and deliver them at settlement.”
What is the difference to existing rules?
Especially, look at that nice word “arrange”.
Why didn’t they write:
“The SEC’s order will require that anyone effecting a short sale in these securities has already borrowed the securities”
At least, naked short would have been impossible with this. (Hopefully, I am not that expert to find loopholes here)
“Arranged” … NSS is all about arranging things.
I would like to have seen a sentence like this:
“The SEC’s order will require that anyone effecting a sale in any securities owns the securities”
And, to be honest, I am in the mood to have an exclusion list of securities affected by this rule. That list could start with SECs list of “protected” shares.
P.S.: This SEC emergency is so pressing, that it will start next monday. And so important that it will stay effective until next friday.
5 days. What was the settlement period in the states? 3 days, I think. Rolling still allowed.
July 16th, 2008 at 8:31 pm
SEC Curbs Short Sellers Short sellers , with Jacob Frenkel former SEC Enf. Atty.
http://www.cnbc.com/id/15840232?video=794727248&play=1
Now this is what needs to be said.
July 16th, 2008 at 8:39 pm
This is good, too.
http://siliconinvestor.advfn.com/readmsg.aspx?msgid=24764852
July 16th, 2008 at 8:52 pm
While we’re at it, toss in a requirement that no commissions are paid until the stock is delivered and the trade settles.
July 16th, 2008 at 9:09 pm
Now the talk shows are on to it. Jerry Doyal is ranting and raving tonight although he is not awatre of the overall picture I have been trying to get through on his call in number to point him to this site as well as bobo’s.
No one reads the newspapers anymore but the talkers are building a following wanting to get what the corrupt media has not given…TRUTH!
July 16th, 2008 at 9:12 pm
By the way, Jerry Doyal is calling for Cox’s firing and even jail for the crooked wall street gang.
We need him to know the whole story…Maybe then firing will be replaced with
hanging.
July 16th, 2008 at 9:36 pm
Re: John
“I dont like Cramer but if he was up to his eyeballs in the fall of Bear Stearns why was he telling watchers of his CNBC show to NOT sell the stock?”
You have to understand the hedge funds that the media mob serves operate on a timetable.. the will rant and rave about how awesome a target is as the hedge funds are establishing their short position. Remember the higher their entry point the more money can potentially be made. And when they knew the exact hour they were going to start a run on bear, they had no interest in sharing those profits with another party. Remember Patricks first appearance on cnbc they wined and heaped glowing praises on overstock? Only to do a complete about face a very short time later after they have established their short position.
I hate to bring in another star wars analogy, Its too bad that Cramer has this Darth Vader complex, I think there is a good part of him that does want to tell everyone exactly how the game is rigged, acts chipper, smartass and funny, but whenever push comes to shove he falls back in line with his loyalty to his money handlers. I swear i can tell exactly when he is carrying water for them or lying on TV as he acts rigid and stoic, and his brow furrows. as opposed to the more likable and jolly off the cuff cramer when hes just rambling off what he thinks. I think it means he has a conscience, i just don’t get why he keeps on serving his masters, obsessed with money and perceived power i guess.
I just thought there might be hope for redemption for Cramer at least compared to Greenberg or Boyd, who always came of as sniveling weaseling Grima Wormtongue sorts…
July 17th, 2008 at 3:01 pm
Claytor,
The real question is why are people trading based on the rantings and ravings of people they see on TV? How dumb is that? Why would you willingly become a lemming?
As for this new SEC short sale rule….
If they extend it, trading will simply move to foreign exchanges and the liquidity will be sucked out of U.S. exchanges. It’ll be the NYSE’s, Merrills, Lehmans and Morgans that’ll be screaming because they will lose the business - putting more downward pressure on their stock and the U.S. economy.
Price volatility will increase on U.S. exchanges, which will be primarily populated by you retail guys since the pros will move to foreign exchanges. Since price volatility is what you lot hate, you’ll get more of what you don’t want. Also, less liquidity means spreads will be wide enough to drive a truck through and commission costs will come back up. It’ll cost you an arm and a leg to execute a trade of ANY kind. Plus, even fewer companies will want to list on U.S. exchanges and will follow the trading volume to European exchanges - as they are already doing to some degree because of Sarb-Ox. Expect that flow out of U. S. exchanges to intensify.
Of course, all this leaving the U.S. exchanges will result in even less economic activity. That’ll only add to the recession and to the downward pressure on these very financial companies this rule is supposed to “protect”. And, of course, on your retirement portfolios - in which I’m assuming you’re long only as shorting is a crime against humanity to you all.
The hedge funds won’t be at all hurt because they’ll just continue to do the same thing in London, on the London exchange, from the comfort of their U.S. offices (ah, the beauty of the electronic markets).
You lot seem to like to concoct spooky villains out of things you don’t understand. For that reason, I sort of hope the SEC does extend the rule to the whole market year round. You really deserve to suffer for your ignorance. Unfortunately, you’ll take down a bunch of innocent folks with you. But, that won’t be my problem.
July 17th, 2008 at 5:46 pm
Gary (Size) Weiss.
Oh dear! How unfortunate, have we ruined your plan? How much more did you think we’d let you get away with? Your method is so flawed. Mel & Bill look so sweet in orange. Do you think they have Picasso’s in their cells?
Its time you wrote another steller page turner, I know, how about “Five Finder Outers go Finding Out”.
Do you know what “Berk” is in London cockney slang? Thats what they call you and your cronies ____”Berks”
July 17th, 2008 at 7:39 pm
Don’t worry, these people will soon be liquidated by the mob and some spec ops boys.
July 17th, 2008 at 8:40 pm
Size
As was just pointed out to some folks on another board.
“Lets make it simple stupid!!!!!
1.) When you short a stock, what are you gambling on?? Or and what is the only way to make money shorting a stock?? A downward move in the stock is the only way to make money!!!
2.) Why is shorting legal? Who the Heck knows!!!!
3.) What is the benefit to that stock? None
The simple stupid of shorting is; For you to consistently make money in the stock market by shorting you either have insider information or you are working as part of an organized effort to drive down the very stock you are shorting!!!
When this is looked into, you will find an organized well oiled machine of Day traders , Marker Makers and Broker dealers who work together to manipulate the market for personal gain at the expense of mom and pop shareholders!!! Average people/shareholders are the only one’s that loss in today’s market because of shorting!!!”
Now it appears that organized well oiled machine is turning on the ones who have for decades helped it haul in untold billions$$ and hide all the illegal shares in cubbyholes. I think Congress whould most definatly start looking at those banking facilities electronic trading records. I bet there is alot of very interesting info. I have already writtne several congressmen asking them to do just that before they agree to any SEC and Fed plans to foot the bailout bill on the taxpayers. After all, it is only prudent to look at what your about to step into when there is such a foul oder in the air.
It is gonna get pretty interesting when some folks start reaping what they have sown. Karma is a Bitch!!
July 17th, 2008 at 8:46 pm
Cox article on naked short selling - he says he wants naked shorting done away with at the end of the article…
Naked Short Selling Is One Problem A Slumping Market Shouldn’t Have
BY CHRISTOPHER COX
Posted 7/17/2008
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.
Cox is chairman of the Securities and Exchange Commission.
http://www.investors.com/editorial/editorialcontent.asp?secid=1502&status=article&id=301188165570449
July 18th, 2008 at 3:02 am
The Sacred Cow of Wall Street is being PROTECTED?
Just how deep in the shite is the DTCC?
“……..The Depository Trust and Clearing Corporation has been criticized for its approach to naked short selling. DTCC has been sued with regard to its alleged participation in naked short selling, and the issue of DTCC’s possible involvement has been taken up by Senator Robert Bennett and discussed by the NASAA and in articles — disagreed with by DTCC — in the Wall Street Journal and Euromoney Magazine. While there is no dispute that illegal naked shorting happens, there is a fight as to the extent to which DTCC is responsible. Some blame DTCC as the keeper of the system where it happens, and say DTCC turns a blind eye to the problem.
DTCC says naked shorting is not widespread enough to be a major concern. “We’re not saying there is no problem, but to suggest the sky is falling might be a bit overdone,” DTCC’s chief spokesman Stuart Goldstein said. DTCC General Counsel Larry Thompson calls the claims “pure invention.”
The SEC, however, views naked shorting as a serious enough matter to have made two separate efforts to restrict the practice. And in July 2007, Senator Bennett suggested on the U.S. Senate floor that the allegations involving DTCC and naked short selling are “serious enough” that there should be a hearing on them with DTCC officials by the Senate Banking Committee. The committee’s Chairman, Senator Christopher Dodd, indicated he was willing to hold such a hearing. The North American Securities Administrators Association, representing state stock regulators, filed a brief saying that if the claims were correct, its shareholders “have been the victims of fraud and manipulation at the hands of the very entities that should be serving their interest.”
July 18th, 2008 at 7:23 am
size (Gary, etc.) -
I hate to admit it, but you are right. If there is a way around regulation, you guys will find it. I just hope you didn’t have too much money in your LBT account.
As for my identity, you couldn’t be more wrong. I’m just a nobody bean-counter at a tiny private company that nobody’s ever heard of or cared about. I just happen to be a voracious reader who hates that soul-less greedy people like you who steal from the little guys, put the financial stability of the world at risk, and don’t really give a crap until their money is put at risk.
July 18th, 2008 at 12:26 pm
Bruiser,
As for my identity, you couldn’t be more wrong. I’m just a nobody bean-counter at a tiny private company that nobody’s ever heard of or cared about.
No, bruiser, you are an idiot who is scared of things that he doesn’t understand and presumes to know who I am and I do. In the absence of the minimal IQ required to actually design and present a counter argument, you rely solely on low blows and copious amounts of stupidity to defend your idiocy.
I don’t know who any of those people you were listing are, btw. I’m just someone who has actual degrees in Finance and economics and knows how markets work. You’re free to disagree and stick your money under a mattress and not let any money grubbing bastards “take you for a ride.”
July 18th, 2008 at 12:46 pm
Well I guess Cox doesn’t want investors to worry about naked shorting - he’s got it all under control….yessiree bobby…
15:23 SEC exempts market makers from ‘naked-short’ sale rule - Bloomberg
July 18th, 2008 at 1:15 pm
ww2player,
You’re conflating two issues: market manipulation and shorting. One can be used to achieve the other but so can buying stock.
When you short a stock, what are you gambling on??
That the stock is overvalued. Or you’re simply taking a short position in that stock to hedge a long position in the other. Assuming you’ve taken that long/short position because the two stocks are correlated, if you’re wrong on your long position, the loss in the long position will be compensated for by the gain in the short position. Sometimes, you may even choose to buy a stock you think is undervalued and sell one you think is slightly overvalued. When they return to fair value (which may be just a few cents for each stock), you unwind the trade. If you’re managing money, that’s a way to reduce volatility of your returns even in a very volatile market.
Why is shorting legal? Who the Heck knows!!!!
One reason is the one I state above. Another is that it makes markets more liquid. So, if you want to buy a stock, but the next offer is 20% above the current price, you either can’t buy or you have to pay up. Say, somebody would like to sell you shares at a much lower price but has no shares in his account. If he can’t short them to you, you’re out of luck. So shorting increases the number sellers and increases overall liquidity, reducing transactions costs for everybody. In markets where shorting is not allowed (mostly small emerging markets) the price swings are outrageous because there’s only one door in and one door out and panic begets panic in both directions because there’s no way to hedge your risk.
3.) What is the benefit to that stock? None
There’s a lot of benefit to the stock. Short sellers prevent the stock from being run up to way above its fair value on heavy buying (again, reducing price volatility). This protects sellers because it prevents them from overpaying for the stock. Specifically, it helps retail buyers because they are the least expert in determining fair value for the stock and most likely to overpay (or sell too cheaply, for that matter). “Fair Value” is an opinion, BTW. So a buyer and a seller (whether short seller or seller of a long position) always disagree about fair value. Whether short selling or selling a long, the seller is always betting the shares will go lower. If the the long position seller didn’t think the shares would go down, why would he sell?
It also benefits the stock because people would rather own more liquid stocks. If you invest in something, part of your risk analysis is how quickly you can exit your investment. The more liquid the market, the more easily you can exit and enter and the more certainty you have that you’ve done both sides of your trade at a reasonable price. That benefits the stock.
you will find an organized well oiled machine of Day traders , Marker Makers and Broker dealers who work together to manipulate the market for personal gain at the expense of mom and pop shareholders!!!
That would take infinitely more collusion than is humanly possible. Keeping in mind, that a lot of these very same people are also long. However, it is possible for a few people to collude in order to manipulate markets. That is FRAUD. Plain and simple. And it should be prosecuted to the fullest extent of the law. But this is rare.
You seem to be working under the assumption that all short selling is targeted at separating you from your money. I also doubt that the financial companies want to be on that emergency action list (although, I’m not an insider to any of those firms, so I don’t have any special information). It’s like basically advertising that you are in such bad shape that you need protection from the SEC. Doesn’t exactly build investor confidence.
Average people/shareholders are the only one’s that loss in today’s market because of shorting!!!
Well, I feel for you and for me - considering a lot of the stocks I own also experienced heavy losses. For a while last summer, I thought I would lose every penny I had and would have absolutely zero for retirement. I didn’t sleep for two weeks and lost so much weight I almost fit into a size zero. It was so bad, I developed deep ridges in my nails from the stress.
Unfortunately, the reason people are losing money is not because of short selling. Naked short interest hasn’t really increased (even in the now protected stocks), which means the overwhelming majority of shares borrowed to short are borrowed from someone who is long. No. These problems stem from the stupidity of these dumbass financial institutions lending to people who didn’t even have a job. What prudent person/institution would lend to someone without determining their income and with zero down so that the borrower had no skin in the game? But they did and their investors are now paying the price of this stupidity.
July 18th, 2008 at 1:36 pm
Before I leave for the weekend, here’s a piece from the CATO institute titled The Economics of Short Selling in case anyone is interested in CATO’s take on it. I haven’t read it yet, so try to refrain from taking a whack at me for posting it if you don’t like the content of the article.
http://www.cato.org/pubs/regulation/regv31n1/v31n1-6.pdf
July 18th, 2008 at 9:02 pm
How do you get all the “Joe Sixpacks” aware?
Get the radio talkers on to this. How do I know? Easy, I am a Joe Sixpack.
Jerry Doyal has Bud Burrel on now.
This IMO is one of the ways to get the masses onto this Fail to Deliever/NSS criminal scam and hopefully mad enough to move the powers in charge.
July 19th, 2008 at 12:11 am
Judd,
Thank you for this amazing investigation. Judging from today’s vicious financial chat-room posts, you have the blind followers of Gary Weiss spinning balony. Can we expect to see a few other cronies of the “Truthseeker” outed in those emails? Roger Schneider is a hero, but so are you and Patrick.
July 19th, 2008 at 7:56 am
Stunned,
I’ve got hundreds of additional emails left to publish. Just a matter of finding the time. Look for a few more this weekend.
Judd
July 19th, 2008 at 9:46 am
Securities trading on the open market should be much simpler: if one purchases a security, bond, or commodity, he must pay full price or forfeit the purchase, and he must take delivery before he can sell it. No margin purchases (to increase leverage, in practice) and no borrowing, both now allowed to “increase liquidity.” For example, imagine the effect on oil prices if all the oil commodities speculators actually had to take delivery of the thousands of barrels of oil they now “purchase” on margin (solely to “decrease” supply–something they cannot do in reality because they lack the storage facilities to take delivery) and thereby run up prices before they sell)!
Obviously, I don’t buy the “liquidity” argument. This “liquidity” tends to become increased leverage for speculation.
July 19th, 2008 at 7:50 pm
I agree, Ginger. Leverage in any market (for the securities market is no different from any other market - it’s a market for a good like any other) should be outlawed.
You should have to pay cash for your house and your car when you buy those. Loans should not be extended to businesses or students either because all of those things are leverage. Certainly, nobody should be able to use credit cards to buy anything. Getting a loan to buy anything is leverage and, while it increases liquidity in the housing, car, higher education, business, clothing, etc.- in fact, all markets - it puts the financial system at risk of a meltdown like the one we’re having now when people can’t pay those loans.
No margin purchases (to increase leverage, in practice) and no borrowing, both now allowed to “increase liquidity.”
Just to correct some factual errors in your post: “margin” and “leverage” are synonyms. To buy on margin is to buy with borrowed money and to lever a purchase is to buy with borrowed money. So, if a=b and b=c, then a=c. Thus, buying on margin is borrowing money to buy something, otherwise known as “levering”. All three words mean the same thing.
Also, the oil speculators don’t actually buy and sell oil. They buy and sell oil futures contracts, so it’s not possible for them to decrease the oil supply.
Let me know on this board when you want to start the campaign against leverage. I’d rather do away with it than go through another housing correction like this one! Just wait until the credit card defaults start coming! Sheesh!
July 21st, 2008 at 6:35 am
On off the ”Big” rob in the gold .Take a look sum guy they call him self experd IN broker everich, Richard Price ( Adm) in company Berringtonstone this guy was reprecenthing Geoandina Mng Corp (OTHER OTC:GODN) selling his shares. Never Ever her from this guy any more
July 22nd, 2008 at 7:03 pm
First off, liquidity is about getting a reasonable price for a buyer or seller when there are no bids or offers on the opposite side. Take away short selling and other market making activities and you will start to see some horrible order fills. It will be impossible to put in market orders on many stocks. Trading volume will dry up. Then the crusaders can complain how Wall Street is cheating investors because there are huge premiums every time you buy and sell. I’m probably exaggerating a bit, but let’s remember what a big deal it was to go to decimal format from fractions a few years ago. It’s two steps back if we eliminate short selling by market makers (which is ‘naked’ 99% of the time although almost always cleared up before there is a failure to deliver).
In the case of Bear Stearns, the rumor on CNBC about Goldman Sachs cutting off credit had nothing to do with anything, and neither did any short selling whether ‘naked’ or otherwise. What caused Bear Stearns to fail is that everybody cut off credit at the same time. It wasn’t because of Goldman Sachs, which could have easily denied cutting off credit. It was because of the extreme leverage that Bear Stearns had, its poor capital position and the crappy structure they had set up that was completely vulnerable to panicky creditors. Blame the creditors for shooting and not asking questions first, and blame Bear Stearns management for putting the company is such precarious position. It’s ridiculous to blame the rumor mill or short sellers. Companies like this need to fail or very quickly change their ways. Moves like the SEC Emergency Order do nothing but delay the necessary corporate action.
One last point is that most of the crusaders seem to have missed the irony that supposedly ‘they’ (the Wall Street MOB) are both keeping stocks afloat via the Plunge Protection Team and trying to bury stocks by allowing ‘naked’ short selling. It seems to me the two conspiracy theories cannot possibly co-exist. So which is it? Plunge Protection Team or Cabal of Naked Short Sellers? Who knows, maybe they cancel each other out . . .
October 5th, 2008 at 2:33 pm
If you have trouble believing there can be massive conspiracies between media barons and everyone else, then you haven’t been paying attention. Why do you think these people get involved in media anyhow? It’s for power. And they wield it. From Jimmy Wales to Gail Wynand, it’s a historical tradition. Now, you might ask, what can be done about it? Not much. Wikipedia might be fixable a bit (by requiring certain identification of editors), but the larger problem remains. There is so much truth that has been stomped out - vitally important information withheld from the populace to protect the privilege of the few, or just as commonly, outright lies told by the media to mark the condemned.