This is the first anniversary of the destruction of Bear Stearns.
For a while there, just after it happened, everybody was talking about the role of short selling, both legal and illegal, in Bear’s rather violent passing.
Since then, the big question has gone from “who the hell set this fire?” to “how did this place devolve into such a firetrap, anyway?” and “how the hell do we get out of this burning building?”
Finding answers to all three questions is vitally important. Yet, I’m a little bothered by the fact that these days, so little attention is being focused on the first.
And so, exactly one year after criminal arsonists set a match to the over-leveraged heap of oily rags that was Bear Stearns, I offer up this video examination of that event, and those that would follow.
While I hope you will all enjoy and help circulate it, I should point out that this video was not primarily made for the frequent readers of DeepCapture.com (as everything in it has already been examined in these pages). Instead, it’s for those who’ve yet to understand why they should be outraged at what’s going on.
In other words, it’s primarily for future readers of DeepCapture.com.
Yet, I need you regulars to take a look, and then help get this out there. Plus, the music is pretty cool, so it’ll be worth your time to watch anyway.
Download:
Windows Media (85 mb).
Ipod compliant .mv4
BEWARE OF ABERRANT STATISTICS
1) Over 5,000 complaints regarding abusive naked short selling abuses were filed with the SEC in the 17 month period in between 1/1/07 and 6/1/08. Not 1 of them resulted in enforcement actions by the SEC.
2) The “self-regulatory organizations” (“SROs”) whose abusive members benefit from naked short selling frauds filed 900 referrals to the SEC in an 18-month period. Not 1 of them was related to abusive naked short selling frauds perpetrated by their members .
3) When the “participants” of the SRO known as the NSCC sell securities and absolutely refuse to deliver that which they sell there is one and ONLY one cure available. That is referred to as a “buy-in”. The parties with 15 of the 16 sources of empowerment to execute buy-ins (the DTCC and NSCC management) still plead to be “powerless” to execute buy-ins of their bosses when they refuse to deliver that which they sell.
4) The research of Evans, Geczy, Musto and Reed (2003) reveals that only one-eighth of 1% of even “mandated” buy-ins ever occur on Wall Street. When the ONLY cure available is intentionally withheld by the employees (NSCC management) of those selling securities but refusing to deliver that which they sold then of course the statistics are going to appear to be aberrational.
5) When the Office of the Inspector General of the SEC finished an exhaustive research project on abusive naked short selling frauds it made 11 separate recommendations to the SEC’s Enforcement Division. This division reported back to this OIG that only one of the 11 had merit. They then released this statement:
“The best sources for information on violations relating to “naked” short selling is the SRO, which has primary responsibility for surveillance of its trading. And we receive a large number of referrals from the SROs, addressing all forms of alleged investment misconduct. It is telling that, of the 900 SRO referrals Enforcement received during the Report’s 18-month survey period, none involved the practice of “naked” short selling. That is to say, the people closest to the trading, with the deepest understanding of and access to the data, did not see and refer any of the large-scale, damaging “naked” short sale abuse about which the Report hypothesizes”.
What they “accidentally” forgot to report is that the abusive members of these “SROs” are on the receiving end of the money stolen from U.S. investors in these naked short selling frauds.
6) When the SROs known as the DTCC and NSCC get sued by the victims of abusive naked short selling frauds the first party to the defense of these SROs is the SEC. In their amicus curiae brief the SEC will tell the judge that we at the SEC signed off on all of these policies that these investors claim have been corrupted. They then ask the judge to dismiss the case.
7) When the SEC gets yelled at by its own Office of Inspector General for not enforcing the laws against abusive naked short selling the SEC cites (above) that the real pros on abusive naked short selling matters are the SROs and they don’t seem to think it’s an issue. Recall that the abusive members of the SROs are the recipients of the money stolen from investors.
8) In their defense against the findings of their own OIG the SEC states: “there is hardly unanimity in the investment community OR THE FINANCIAL MEDIA on either the prevalence, or the dangers, of naked short selling”.
IF ONLY THERE WERE A PATTERN TO THIS ILLICIT BEHAVIOR!
I find it hard to understand why the naked short on bear sterns is anonymous. There is no way of knowing who did this?
If you don’t have much time to devote to the study of naked short selling the gist of it is this: There is only one party empowered to provide the ONLY cure available when the seller of securities absolutely refuses to deliver that which he sold i.e. execute a buy-in. The problem is that this party that is intentionally witholding the ONLY cure available (NSCC management) is employed by those refusing to deliver that which they sell. Now how clever is that. Over the years you attain 15 of the 16 sources of empowerment to provide the only cure available (a virtual monopoly) and then you withold this ONLY cure at the behest of your bosses that are picking the pockets of naive U.S. citizens unaware that their investment never did have a chance to pay off.
Myshadow, it would be trivial to track down who did it.
It might track down to an offshore entity in the Cayman’s, but because a crime was committed, the government there would give up the beneficial owner.
http://www.marketrap.com/article/view_article/9170/jim-cramer-the-weasel-who-is-now-an-investor-advocate
Text of Senator Kaufman’s dialogue about abusive naked short selling:
http://techstock2000.wordpress.com/2009/03/21/hooray-for-senator-edward-kaufman-d-de/
Probably already posted here, but…
Naked Short Sales Hint Fraud in Bringing Down Lehman
-By Gary Matsumoto March 19 (Bloomberg)
http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aB1jlqmFOTCA
FINANCIAL TERRORISTS:
Bush, Paulson & Cox allowed a co-ordinated terrorist strike against our financial system by rich fat cats wielding Blackberries rather than GPS units to bring down major financial institutions, the banking system around the world, and confidence worldwide, and thus place the world in the throes of a Great Depression. no need to take over airliners and crash them into buildings anymore. investment bankers and hedge fund managers do their work for the terorists with impunity and even get rich in the process.
I presume this is a daft question, but how does the present market valuation of a company’s outstanding stock determine it’s success or failure? My logic is that a company relies solely on its own assets and ongoing operation’s cash flows — matters that are separate from its equity valuation. Don’t stock fluctuations affect only the shareholder’s equity and not the company’s equity? How is the company’s ongoing operations affected by whatever arbitrary value their share’s currently trade at?
Thanks in advance for any enlightenment on this matter.
Rken, yours is a very good question.
First and foremost, and in the broadest sense, share price greatly affects a company’s ability to raise money to fuel growth. That’s because most public companies use shares as collateral against debt. As share price drops, money becomes much more expensive to borrow, adversely affecting a company’s bottom line. It also becomes harder for companies to raise money via secondary stock offerings. This is particularly damaging to high tech and (especially) biotech companies for which additional rounds of public financing to pay for research and development are so often built right into their business plans.
Additionally, as share price dips below one dollar (into “penny stock” land), companies find that suppliers cease financing inventory or make the terms very difficult to bear. This further constricts cash flow.
Faced with these problems, companies often find themselves forced into a financing “death spiral” which often ends in bankruptcy, though it’s usually a long-ish process (spanning years).
On the other hand, as the examples of Bear and Lehman taught us, when it comes to financial companies a different set of rules apply. That’s because banks are constantly making short term loans to each other, also using their shares as collateral. Because collateral-to-debt ratios must always meet certain levels, when a share price takes a sudden hit, counterparties demand that the loan balance be immediately paid down to keep the ratios in line. Two days of that and suddenly Bear Stearns and Lehman have no more capital cushion, depositors get nervous, a run ensues, and bankruptcy follows.
Having said all this, I should point out that Bear and Lehman very well might have gone bankrupt over time. They were greedy and deserved as much. But it’s still murder to kill someone with a terminal illness, and had the process progressed naturally, the consequence would not have been nearly so dire. Given more time, Lehman might have been acquired or bailed out, and the credit crunch made much less severe.
The point of my video is to remind people that there remain murderers walking around out there.
Judd,
I just discovered that “The short heard ’round the world” in deepcapture.com is MISSING MOST of the original Comments – there is suppose to be 116 comments.
I just found all the comments in a Google Cache of this page:
http://74.125.95.132/search?q=cache:LBZPZ-YMzGYJ:test.deepcapture.com/the-short-heard-round-the-world/+CHRISTOPHER+L.+CULP+%2B+istandup+%2B+deepcapture&cd=1&hl=en&ct=clnk&gl=us
Can you copy them and add them back into DeepCapture.com?