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 . . .

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!

Obviously, I don’t buy the “liquidity” argument. This “liquidity” tends to become increased leverage for speculation.

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.

http://www.cato.org/pubs/regulation/regv31n1/v31n1-6.pdf

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.

15:23 SEC exempts market makers from ‘naked-short’ sale rule – Bloomberg

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.”

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.

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.”

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

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!!

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”

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.

We need him to know the whole story…Maybe then firing will be replaced with
hanging.