CNBC Spectacle Precedes Naked Short Massacre

So the SEC today lifted its ban on short-selling, and all but declared open season for law-breaking naked short sellers to start destroying companies again – and who does CNBC have on for two hours as its honored “guest host”?

None other than Jim Chanos, the salamander-slick director of the short-seller lobby.

Asked about naked short selling, Chanos said, with a straight face: “Anytime a hedge fund or short seller shorts a stock, it is a legitimate short. We have to get a locate or pre-borrow from the broker….”

Chanos continued: “The one thing I have in common with Patrick Byrne, chairman of [and Deep Capture reporter], is that we are calling for strict, strict delivery…in terms of delivering shares…that is how to end this naked short selling…”

CNBC, which serves as a sort of seedy massage parlor to the short selling community, gave Chanos the usual treatment – lubrications and sweet nothings. No tough questions. No retorts to his outlandish assertions. No wondering aloud as to his absurd and self-serving logic.

Let’s get this straight.

Not long ago, Chanos insisted that naked short selling did not occur.

Now, he says naked short selling occurs. But it’s not short sellers who are naked short selling. Short sellers make sure their brokers borrow real stock before they sell it.

In any case, Chanos acknowledges that short sellers’ brokers are not borrowing real stock before they sell it. That is why they are not delivering the stock. And that is why he claims to agree with Patrick Byrne that there needs to be “strict, strict delivery.”

But Chanos is against a ban on naked short selling (which would force short sellers to borrow real stock, thus ensuring delivery). Chanos says that a ban on naked short selling would destroy “market efficiency.”

So, to summarize the Chanos position: Naked short selling didn’t occur, but now it occurs, except short sellers don’t do it, and the SEC shouldn’t ban it because the market would cease to function properly if short sellers were forced to stop doing what they don’t do.

And given that so many shares are failing to deliver (after being sold naked by short sellers who never sell naked), Chanos is calling for “strict, strict delivery” of stock (while praising the SEC for its “strict” new rules which stipulate that nothing happens to short sellers who fail to deliver stock).

CNBC treated us this morning to two hours of Chanos nonsense. At one point this charlatan even insisted that short sellers aren’t short selling financial stocks at all. Really, he said short sellers aren’t short selling. Period. Take his word for it. CNBC did.

That was around 7:30 AM, right after CNBC’s Becky Quick referred to Chanos as “the legendary short seller….er, investor.”

At 9:30 AM, the markets opened and the criminal naked short sellers…er, investors…went back to work, unfettered by the SEC’s “strict” new rules.

Within an hour, Morgan Stanley was down 25%.

* * * * * * * * *

  1. Ironic thing is, GE is the parent company of CNBC, and they had to beg from protection from guys like Chanos. And then, they help guys like Chanos blow up MS and GS, where CNBC runs in the trading room.

    I think the Street should just boycott CNBC, and that’s just a stock.

  2. He may be right about the shorts. I dont care. His company doesnt have a p/e%.

    Where is that Google dont post software.

    Borland shouldnt have been let go. That was bad, and other things. OSTK cant turn a profit. Id like to help, could have made all the diffrence, but I i CANTSHUT UP.

    Mr Byrne may know part of the reason Wall Street is going bad. I dont pretend to understand naked shorting. Maybe its a factor….

    I like p/e’s around 15/20 to 1…and even that was GARBAGE to mr buffett in the past. I say that with RESPECT. TURN a PROFIT!


    I do wish the best. I think 10 years down the line, it may actually be a mkt leader, worth 5 bil.

    None of that will help our current situation. What bankers, fed, anyone…cant realize is this. We financed the lat 15 years on real estate appreciation. And loans made to people that had no business in a fixed, much less a vairiable.

    Im actually surprised that the collapse didnt happen sooner.



  3. Chanos’ interview can be used against the brokers. He said that the brokers weren’t delivering.

    If it were only the SEC that is corrupt, but it is worse than that. It is every government agency. They are all being run for a profit for someone.

    Read this in its entirety:

    The privatization of prisons requires an increasing prison population for growth. That is why we won’t see border control. We will see no improvement in drug trafficking because the War on Drugs, like the War on Poverty and the War on Terrorism are all profit centers. Wall Street is just a money launderer.

  4. I submitted questions into Becky and Joe to ask Chanos but for some reason they never asked him:

    1. Jim are you willing to to have your BD buying in for guaranteed delivery any fails that they are carrying on behalf of your trade. I am not talking best effort where the BD claims that can not buy it in because there are no shares available at this price but guaranteed delivery buy-in at the cost necessary to obtain settlement.

    2. Jim, why do you think a BD is taking the financial liability of holding a Fail to Deliver in the system on behalf of their clients? Who ultimately benefits from this, the BD or the client who is represented in their trade strategy but represented not with a legitimized trade but with a trade that failed to meet the standards expected.

    3. Jim, If you agree that the rules for settlement are essential, and that loopholes exist that you can drive a tank through, why are you opposed to the mandatory pre-borrow that would guarantee settlement is achieved. Isn’t any other alternative so far discussed providing for the existence of a settlement failures? Can’t trades that fail for even a day or a week be leverage used to drive away buyers in a market?

  5. putting it together…I will read this in it’s entirety. A quick skim of it’s contents and players peaks my interest as I think it will lend even more credence to my believe that they (Republicans and Democrats) are all “in cahoots” and have been for a long time for their own good and none others. Let me make that clear…THEIR own good, not their constituents. Thank you for that link. I will pass it along.

  6. Cry Me A River…….

    Lehman collapse puts hedge fund in dire straits
    Short-seller Copper River should be in its glory in a market like this. Instead, it’s fighting for its life.

    By Roddy Boyd, writer
    Last Updated: October 10, 2008: 12:15 PM ET
    NEW YORK (Fortune) — September was arguably the worst month in hedge fund history, as unprecedented volatility in the capital markets forced once-mighty investment managers to book losses that had been thought unimaginable.

    But for noted short-sellers Copper River Management, a $1 billion hedge fund based in Larkspur, Cal., the month turned into a perfect storm.

    A devastating combination of counter-party failure, sudden regulatory edicts and margin calls conspired to turn the fund’s performance on its ear, leading to a 55% loss in just two weeks.

    According to people familiar with Copper River, the fund’s management has sent out a letter to its investors in an attempt to explain the crisis and to retain enough capital to keep operating.

    Year had looked decent
    What’s worse for Copper River is that the battering had nothing to do with the quality of its investments – the fund, which primarily bets on the declining value of stocks it reasons are sharply over-priced, was otherwise having a decent year, returning about 5%.

    The fund and its general partner, Marc Cohodes, are no stranger to controversy, given that its specialty is spotting dubious, or even illegal, business practices – and then publicizing its findings.

    Profitable short sales for Copper River read like a “Murderers Row” of corporate blow-ups over the past decade, including the likes of Grand Theft Auto game maker Take-Two Interactive Software (TTWO), insurer Conseco and Boston Chicken.

    More recently, two companies the fund has shorted, and Fairfax Financial Holdings, have sued the fund, alleging Copper River (formerly known as Rocker Partners, after founder David Rocker) participated in a scheme to drive down their stock prices. The Overstock case is headed for an April trial in California; the fund was recently dismissed from the Fairfax case.

    Hard times aren’t foreign to Copper River, either: The fund dropped 36% in 2003 when the equity markets surged. But those losses were attributable to the short-sellers dilemma: Shorts are betting on declines in stock prices when, over time, stock prices tend to go up (current events notwithstanding). In 2005, however, the fund netted a 46% return.

    The recent problems for Copper River began in the middle of last month as Lehman Brothers began to totter. According to Copper River investor and another person close to the fund, Copper River had put on a series of derivative trades with Lehman as its counter-party. As certain stocks dropped in price (as described to Fortune, the derivatives were structured as put options, allowing the fund to sell a stock to Lehman on the belief that it could cover the sale at a lower price at a later date), the trade would become more profitable for the fund.

    When it became apparent that Lehman was in serious straits, Copper River unwound the trade and awaited the return of the capital it put up as collateral. But Lehman filed for bankruptcy September 15 and Copper River’s money became tied up in the firm’s mounting court battles with creditors.

    On top of that, as Lehman unwound its own internal hedges to the Copper River trades, its trading desks bought shares of these companies, driving up their prices and leading to losses for Copper River.

    Suffering in the short ban
    That was bad enough, but on September 19, the bottom fell out for the fund. That was when the Securities and Exchange Commission ordered unprecedented restrictions in short sales, including the banning of all short sales of financial companies (and soon expanded to dozens of non-financial companies).

    As prices in those stocks shot upwards, Copper River was forced to cover – or buy back – some of its positions at steep losses. The rising stock prices also led to a series of margin calls (demands for additional cash collateral to be deposited in a margin account) from Goldman Sachs, Copper River’s prime broker. A Goldman spokesman did not return a call seeking comment.

    Copper River’s Cohodes declined to comment. Yet it must have been galling for Cohodes to watch former Lehman chief executive Dick Fuld castigate short sellers when Copper River’s own fortunes were tied to Lehman’s sinking ship.

  7. What else. NBCs affiliates have much at stake. NBC, MSNBC, CNBC. NBC, MSNBC are the political machine and their bias is clear. However, CNBC financial positioning from October 2007 until now is very telling.

    Considering that 60% of Americans are exposed to the market through 401k plans; why did CNBC continued to mislead individual investors while wealth fled to safety? Close monitoring of CNBC from October 2007 till now would be a huge story. Media Bias, influence peddling under the guise of financial news. What a powerful entity the ability to shape political and financial perceptions in direct contrast to reality.

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