The Sound of one Hand Clapping

2 min read

Since this conversation is being carried out in the open now, I thought I’d add the note I sent Jeff Mitchel last night upon receiving his request to participate in a conference on the topic of naked short selling. Like Patrick, I have my doubts about Jeff’s proposed event, though mine are of a different nature, and I’d like to get the Deep Capture Community’s impressions.


This is a very interesting idea. I knew from email Gary Weiss sent Floyd Schneider in early 2006 that this was something you’d previously looked at organizing, and I’ve wondered if you would be considering again in the future. I agree that there could not be a more relevant time than now to re-examine the possibility.

That said, let me offer what I see as a potential barrier.

As we’ve seen this issue clumsily addressed by business media over the past week, something that particularly stands out is the question of whether “naked short selling” is illegal. In one of Chairman Cox’s earliest interviews, he said that no, naked short selling is not illegal, unless it is done illegally (which he went on to explain means unless it is abused as a tool of stock manipulation).

Patrick has a great analogy: it’s perfectly legal to discharge firearms up in the mountains, though it’s clearly illegal to discharge a firearm into someone’s head…even if you’re up in the mountains (and regardless of whether the local sheriff feels inclined to actually enforce the prohibition on homicide).

Continuing with the firearms analogy…

While a conference dedicated to examining the issues surrounding firearms might be well-attended, you can bet that you won’t see a panel featuring proponents of using firearms in violent crimes (which would not be for a lack of people with that attitude…it’s just that they typically want to keep it to themselves).

What we have issues with is illegal naked short selling, meaning, illegal stock market manipulation.

If your proposed conference will be examining the legal version of naked short selling, then I don’t think we’d have much to say about it.

If, on the other hand, the topic will be the illegal — though selectively enforced — version of naked short selling, you can be certain that we’d have plenty to say on the topic, but you won’t likely find anybody (other than Gary Weiss) to publicly offer much in its defense. Indeed, if his blog is any indication, Weiss will say that illegal naked short selling does not exist.

Furthermore, I am certain that the likelihood of Gary Weiss consenting a debate-like forum, where his well-documented positions might be subjected to public scrutiny, is exactly zero. Ditto the DTCC.

As for regulators, SIFMA recently held a conference which included a panel examining the crisis of illegal activity in stock lending (ie: disregarding the locate requirement being sort-of enforced over the next 29 days), and I’d be happy to get you the names of those who participated, but note that none of the panelists spoke in favor of breaking that law.

What I’m trying to say is this: if you’re looking for lively debate on the topic, I don’t believe you’ll find anybody willing to publicly take the side opposite ours, because they would either be espousing the now-antiquated position that illegal naked short selling does not exist, or they would essentially be admitting to supporting criminal behavior.

I do think there is room for an examination of the proposed repeal of the options market maker exemption, which is an area where good people can disagree with neither side admitting to criminal behavior, and where we would also have plenty to add.

All this is a long way of saying that, speaking for myself (Patrick can opine separately if he wishes), I would be very interested in continuing a dialog with you on this topic, but I suspect that a conference on the form of illegal market manipulation that we regard as our issue would be fairly one-sided.

And for the record, Jeff, while I’ve some questions as to your motivation, I don’t think you’re nuts. Just misinformed.

Judd Bagley

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One Reply to “The Sound of one Hand Clapping”

  1. Patrick ByrneI agree that you are a very smart man, but I wish you would research H$U$ a little mor. Patrick Byrne you are supporting an Animal Rights quasi-religious cult(H$U$) whose ultimate goal is to free animals from all human interaction(eliminate pets),stop ALL medical research where animals are involved,promote veganism (cult’s dietary regimen)etc.

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