Patrick Byrne I am a concerned citizen who has been focused on systemic instability since 2004.

Live On CNBC: Naked Shorts "Causing" Market Mayhem

1 min read

History was made last night.

At 9:30 pm, CNBC broadcasted these words: “naked short selling is what’s causing a lot of the problems in the market.”

The words came from former SEC Chairman Harvey Pitt, who added that “there’s a very simple solution…if you want to sell a stock short, you have to have a legally enforceable rule to produce that stock on settlement day. That’s all it takes.”

Force hedge funds to actually deliver the shares that they sell. Force them to actually purchase or borrow real stock before they sell it. If market manipulators sell what they do not possess, put them in jail.

Yes, that’s “all it takes.” It really is that simple.

But until last night, we’d never heard it on CNBC.

If the SEC completely stops naked short selling, then demand will more closely reflect the supply of real stock. Prices could get a boost, as they did last summer, when the SEC issued an “emergency order” temporarily cracking down on naked short selling of stock in 19 big financial companies. And the massacres of public companies would stop.

Of course, it might be too late. A sinking economy can’t revive a sinking market – no matter who threw us down the well. The criminals should have been stopped before they put us in here.

It says something awful about the state of the nation that we began having a half-conversation about this issue only after CEOs of big Wall Street banks – the very banks whose prime brokerages happily profited from the naked short selling of their hedge fund clients – found themselves looking down the gun barrels of their former partners in crime.

A few quivering Mafiosi pee in their pants, and now we wonder whether one Mob boss should be protected from another Mob boss. Not a word about the hundreds of smaller, innocent companies that have been brutalized by these goons.

How sad that when CNBC airs a simple truth – “naked short selling is what’s causing a lot of the problems in the market” – we have to call it “history.” How sad that this “history” took place at 9:30 pm, when nobody was watching. How sad that it took place only because the CEO of Citigroup has been begging for an ill-advised, outright ban on short selling.

Sure, Jim Cramer has been ranting about “diabolical” naked short sellers on “Mad Money.” Tonight he said (with some justification) that naked short selling was destroying capitalism. But never on CNBC proper. Never in the segments that CNBC portrays as “news” — as opposed to the loony rantings of a bald sociopath.

I am reminded of Russia, where the television news stations are tools of the government-mafia oligarchy, but make sure to air the occasional late-night interview with some dissident – carefully selected for his squirrely appearance and checkered background. The illusion of “balance” makes the propaganda all the more insidious.

America is not yet Russia. But with its ransacked financial system, its billionaire cronies, its captured regulators, and media like CNBC, our nation is not quite “America” either.

If this article concerns you, and you wish to help, then:

1) email it to a dozen friends;

2) go here for additional suggestions: “So You Say You Want a Revolution?

Patrick Byrne I am a concerned citizen who has been focused on systemic instability since 2004.

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0 Replies to “Live On CNBC: Naked Shorts "Causing" Market Mayhem”

  1. By GARDINER HARRIS
    Published: November 21, 2008
    An influential psychiatrist who served as the host of public radio’s popular “The Infinite Mind” program earned at least $1.3 million between 2000 and 2007 giving marketing lectures for drug makers, income not mentioned on the program.

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    Don Hogan Charles/The New York Times
    Dr. Frederick K. Goodwin in 2001 during taping of “The Infinite Mind,” his public radio program.

    Related
    Conflicts of Interest May Ensnare Journalists, Too (November 22, 2008) The psychiatrist and radio host, Dr. Frederick K. Goodwin, is the latest in a series of doctors and researchers whose ties to drug makers have been uncovered by Senator Charles E. Grassley, a Republican from Iowa. Dr. Goodwin, a former director of the National Institute of Mental Health, is the first media figure investigated.

    Dr. Goodwin’s radio programs have often touched on subjects important to the commercial interests of the companies for which he consults. In a program broadcast on Sept. 20, 2005, Dr. Goodwin warned that children with bipolar disorder who are left untreated could suffer brain damage, a controversial view. “But as we’ll be hearing today,” Dr. Goodwin reassured his audience, “modern treatments — mood stabilizers in particular — have been proven both safe and effective in bipolar children.”

    That very day, GlaxoSmithKline paid Dr. Goodwin $2,500 to give a promotional lecture for its mood stabilizer drug, Lamictal, at the Ritz Carlton Golf Resort in Naples, Fla. Indeed, Glaxo paid Dr. Goodwin more than $329,000 that year for promoting Lamictal, records given Congressional investigators show.

    In an interview, Dr. Goodwin said that Bill Lichtenstein, the program’s producer, knew of his consulting activities but that neither he nor Mr. Lichtenstein thought that “getting money from drug companies could be an issue. In retrospect, that should have been disclosed.”

    But Mr. Lichtenstein said that he was unaware of Dr. Goodwin’s financial ties to drug makers and that he called Dr. Goodwin earlier this year “and asked him point-blank if he was receiving funding from pharmaceutical companies, directly or indirectly, and the answer was, ‘No.’”

    “The fact that he was out on the stump for pharmaceutical companies was not something we were aware of. It would have violated our agreements,” Mr. Lichtenstein said in an interview.

    Margaret Low Smith, vice president of National Public Radio, said that N.P.R. will remove “The Infinite Mind” from its satellite radio service next week, the earliest possible date. Ms. Smith said that had N.P.R. been aware of Dr. Goodwin’s financial interests, it would not have aired the program.

    Sarah Alspach, a spokeswoman for Glaxo, said, “We continue to believe that healthcare professionals are responsible for making disclosures to their employers and other entities, in this case National Public Radio and its listeners.”

    “The Infinite Mind” is a weekly program that has won more than 60 journalism awards over 10 years and bills itself as “public radio’s most honored and listened to health and science program.” It has more than one million listeners in more than 300 radio markets. Mr. Lichtenstein said that the last original program aired in October, that reruns have been airing since and that “the show is going off the air.”

    The program has received major underwriting from the National Institutes of Health and the National Science Foundation, both of which have policies requiring grantees to disclose and manage conflicts of interest. Mr. Grassley wrote letters to both agencies asking whether disclosure rules were followed for the grants. Spokespeople for both agencies said they were cooperating with the investigation.

    Mr. Grassley is systematically asking some of the nation’s leading researchers and doctors to provide their conflict-of-interest disclosures, and Mr. Grassley is comparing those documents with records of actual payments from drug companies. The records often conflict, sometimes starkly.

    In October, Mr. Grassley revealed that Dr. Charles B. Nemeroff of Emory University, one of the nation’s most influential psychiatric researchers, earned more than $2.8 million in consulting arrangements with drug makers from 2000 to 2007, failed to report at least $1.2 million of that income to his university and violated federal research rules. As a result, the National Institutes of Health suspended a $9.3 million research grant to Emory and placed restrictions on other grants, and Dr. Nemeroff relinquished his chairmanship of Emory’s psychiatry department.

    In June, the senator revealed that Harvard University’s Dr. Joseph Biederman, whose work has fueled an explosion in the use of powerful antipsychotic medicines in children, had earned at least $1.6 million from drug makers between 2000 and 2007, failed to report most of this income to his university, and may have violated federal and university research rules.

    Mr. Grassley’s investigation demonstrates how deeply pharmaceutical commercial interests reach into academic medicine, and it has shown that universities are all but incapable of policing these arrangements. As a result of these revelations, almost every major medical school and medical society is now reassessing its relationships with drug and device makers.

    “We know the drug companies are throwing huge amounts of money at medical researchers, and there’s no clear-cut way to know how much and exactly where,” Mr. Grassley said. “Now it looks like the same thing is happening in journalism.”

    Mr. Grassley has proposed legislation that would require drug makers to publicly post all payments of $500 or more made to doctors. Eli Lilly and Merck have promised to begin posting such payments next year.

    Dr. Goodwin has authored an influential textbook on bipolar disorder and is an adjunct professor at George Washington University. In an extensive interview, Dr. Goodwin blamed a changing ethical environment for any misunderstandings between himself and Mr. Lichtenstein about his consulting arrangements.

    “More than 10 years ago when he and I got involved in this effort, it didn’t occur to me that my doing what every other expert in the field does might be considered a conflict of interest,” Dr. Goodwin said.

    He defended the views he expressed in many of his radio programs and said that, because he consults for so many drug makers at once, he has no particular bias.

    “These companies compete with each other and cancel each other out,” he said. This view is dismissed by industry critics, who say that experts who consult widely for drug makers tend to minimize the value of non-drug or older drug treatments.

    In the fine print of a study he authored in 2003, Dr. Goodwin reported consulting or speaking for nine drug makers. Mr. Grassley only asked for payment information from Glaxo. Dr. Goodwin said that in recent years Glaxo paid him more than other companies.

    He said that he has never given marketing lectures for antidepressant medicines like Prozac, so he saw no conflict with a program he hosted in March titled “Prozac Nation: Revisited” that he introduced by saying, “As you will hear today, there is no credible scientific evidence linking antidepressants to violence or to suicide.”

    That same week, Dr. Goodwin earned around $20,000 from Glaxo, which for years suppressed studies showing that its antidepressant, Paxil, increased suicidal behaviors.

    Tom Rosenstiel, director of the Project for Excellence in Journalism, said that although concerns about media bias are growing, few people believe that journalists take money from those they cover. Disclosures like those surrounding Dr. Goodwin could change that, “so this kind of thing is very damaging,” Mr. Rosenstiel said.

    It is so bad even the New York Times can’t ignore this issue. I guess it isn’t just the stock market that has been infiltrated.

  2. Mark, I believe the comments by Pitt are perfectly aligned with what is needed. I do disagree with him however regarding the uptick rule as a short seller can pre-borrow enough shares to impact a market if they execute them properly by taking out the bids in a rapid succession. If the market is fragile or illiquid the damage can be done even with a pre-borrow.

  3. The Issue of Naked Shorting is coming to a head.

    They called Byrne crazy.
    They laughed at him.
    They denied it existed.
    They fought him directly with barrels of ink and frivolous countersuits.
    Then they said he was right.

    Next up? See the 1st comment on this page. Captured regulators, and now journalists, being exposed for derailing competing interests in biopharma. Dendreon, when Provenge is finally approved next year, and the Spring ’07 derailing of Provenge after an FDA panel recommended its approval, will be at the center of this new storm. The conflicts in interest involved are astounding, and like Patrick’s quest, have been declared to be the whining of folks who stock went down, or whacky conspiracy theories – but like PB’s jihad, the hard facts say otherwise.

  4. …and by the way, Dendreon (DNDN) has been on the Reg SHO list for years. Its short interest (and probably NSS) soared AFTER an FDA panel recommended its approval but BEFORE it was delayed by the FDA. Um, yeah, the fix was in and some very crooked people profitted from that. As well as some of the doctors who were lone dissenters on the panel, then lobbied the FDA for rejection, while having finanical interests in direct competitors.

  5. Naked Shorts can destroy companies just as easily (if not even more easily) in a bear as a bull market.

    You have to push for market reform whenever you can get it.

    BTW, I still think the ultimate reform would be to create a Real Time Exchange and get rid of the clearinghouses altogether. The proposal was on this link:

    http://y-intercept.com/equity/

  6. Yes, Jim Cramer is now voicing his displeasure with short selling. But not too long ago Jim Cramer and Herb Greenberg would routinely protect short sellers on CNBC while laughing publicly at Pat Byrne specifically when he called attention to naked short selling. Why is Cramer not accountable for those critical actions, viewed by millions of Cramer cutlists.

  7. Mark, I see your harvey Pitt and raise it to my Jim Cramer..They are coming out of the woodwork, yet not one will give you guys the credit you deserve. I think the rant may be his best one yet.

    From a post on Investorvillage but the video is the “Piece de resistance”

    “Where have you gone, Joe Dimaggio?”
    I am no fan of Jim Cramer. This is the guy who wrote “Bull” on a subpoena given to him, Herb Greenberg and Carol Remond a few years back by the West Coast SEC office. Of course, what a co-incidence that the same SEC office that was criticized by The SEC IG for its mis-handling of the Gary Aguirre/Pequot/John Mack case is the one that over-ruled the SEC office that issued the sub-poenas….Seeing a pattern here about what it means to have “juice” folks?

    Anyway, with respect to the SEC, short selling, naked short selling etc….Cramer gets it right. Regardless of what one thinks about Jim Cramer, and his “motivations” for suddenly having an epiphany about it, when, on video, he openly admits that as a hedge fund manager he attempted to manipulate stocks down and found it “gratifying”, this short clip articulates what we have been saying on this board for more than 5 years. The SEC has enabled the destruction of company share prices by the acceleration of declines.

    Why does short selling exist in the first place? Because legal short selling can serve as a buffer to the exuberance of investors who are vulnerable to stock promoters and over reacting to “good news”. I have NO problem with LEGAL short selling….but that is not the ROOT of the problem.

    The SEC’s elimination of the uptick rule and the timing of it are very suspicious. Why, after more than 70 years, do away with a rule that slowed things down, when the market put in circuit breakers to give the market time to “sort things out” during major declines? Why take away a rule for individual stocks to slow down their rate of decline, especially given the enactment of Reg SHO which was designed to protect companies from abusive short selling and non-delivery? Why grandfather existing fails? The SEC stated on their website that it was to prevent undesirable volatility (a euphamism for “short squeeze”). Why protect the sellers at the expense of the buyers?

    And what of the rat’s nest of ex-clearing? The ability to move fails from market maker to market maker, delaying the inevitable fail…

    Is the problem so large that the SEC felt compelled to aid a decline to give the shorts time to cover? I can’t believe they would do such a thing, but how can one explain all of this:

    Grandfather fails

    Keep the Option market maker exemption

    Eliminate the uptick rule

    Not aggressively enforce the hard locate and borrow rules

    Prevent the multiple lending of the same shares

    Be concerned with upward volatility and eliminate all safeguards for downward volatility

    Withdraw subpoenas from “journalists” who are responsible for moving the prices greatly of stocks by negative articles, many of which may be justified, but the timing of the articles and the benefit to short sellers should be investigated.

    The “playing field” is not level. It is a rigged market for short sellers and the elimination of the uptick rule, the option market maker exemption, grandfathering fails (not mentioned), ex-clearing (not mentioned) have made this market vulnerable to quick, unabated decline. The point of the uptick rule is not to prevent decline, but to slow the pace which gives all market participants time to deal with news, corp. events etc…The rate of our decline has been accelerated by the SEC’s inaction.

    To blame the decline on irresponsible lending practices, over-inflated real estate etc… is completely appropriate. But the RATE of this decline is not. Companies in trouble have had little or no time to sort out and fix problems, if possible.

    Naked short selling? Who knows how big this problem is…Perhaps the new administration will take this problem as seriously as Robert Shapiro, Harvey Pitt, Suzanne Trimbath and others believe it to be. If they do, stocks will recover and new companies will not fear using the public equity markets to finance their growth. If not, enterprise will take a huge hit in the US.

    You want a real economic stimulus” SETTLE THE TRADES.

    Like I said, I’m no fan of Cramer, but at least someone who has an audience is speaking up and demanding the SEC take steps to defend shareholders from manipulative short selling. This must stop NOW. The public has had enough. So I will say it…”Thank you, Mr. Cramer…I have been a big critic of some of your horrific calls in the past, but you have this right…but WHERE WERE YOU 7000 POINTS AGO???”

    The public has NO IDEA that their elected officials and appointed regulators have hastened the demise of their retirement accounts and given them time to move to cash or T bills until the markets quieted down.

    Why are speaking out AFTER the damage is done?

    “Where have you gone, Joe Dimaggio”

    http://www.cnbc.com/id/15840232?video=936081488&play=1

  8. I agree with Patchie:

    Nothing will be solved unless there is a ceiling on short sales. Even if naked short selling were eliminated 100%, the scheme would shift slightly but continue unabated because shares can be lent and relent over and over again.

    Theoretically, all the schemers would need is one single legitimate share to drive the short interest as high as they wanted to by lending and re-lending that one share amongst themselves over and over again like a ball bouncing off the walls.

    The Original NCANS letter spells this out in detail as do other NIPC letters. Eliminating naked short selling is not enough. There has to be a hard ceiling as to how high the short interest can go. As for me personally, I think all short selling should be banned period – all kinds. Betting on the short side could still be done via futures and options, so long as there is no hedging in the affected equity.

    The writers of those contracts have to take the risk exposure and not lay it of onto the equity holders.

    And if these types of contracts are too risky or costly, then so be it. I think more damage is done via short selling than any benefits are derived from it. The Risk/Benefit of short selling equities doesn’t pencil out when considering the formation of capital, the benefit/loss to the issuers, employees and economy.
    Tom

  9. I don’t get a ceiling on short sales. Just don’t allow multiple simultaneous borrows of the same share. Otherwise the broker is acting like a bank and is creating phantom shares.

  10. It appears we have reached stage 3. The wolf pack is so large that they are stalking the whole herd. You know if I knew that the the worse scerio we could imagine was the mild compared to the reality of what we are now facing I would have shorted, bought ETF’s, naked options etc…

    This government is ignoring this financial 911 and are more than willing to let the unfree market work. They have done a remarkable job deytroying our economy and retirement savings of a nation.It’s completely amazing to see our legislators throw soft ball quesrtions at the hedge fund managers who are the only ones profiting from this.In the end our government understands what is going on but sprays water on the edge of the fire so as to pretend to do something. Without action we are going to go down much further.
    It maybe to late but what we should do is develop a consortium of CEO’s whose companies have been under attack to come out publicly and ask their representatives to have the SEC implement full disclosure as to outstanding shares and who is short them.
    Secondarily we need to bombard companies that want to go public with the truth. By doing this successfully we could deny the markets fresh meat.
    I suppose with a new administration coming in there is some hope that they will try to enforce the rules, if not we will know fairly soon. Right now we just have to make it untill then. If we dare to plug in the worst scenario we can imagine the market will have dropped to 4000 on the DOW by January 20, 2009, unemployment will be pushing 9.0%. Maybe then Joe Sixpack will finally start asking the right questions if that’s possible.

  11. Having short sales limited by the number of shares to let simply creates a new avenue for manipulating the market. A large hedge fund could suddenly make a large number of shares available. This would artificically increase the virtual float. They could then shut off access to the shares and create another artificial movement in the market.

    I disagree with the statement that short selling caps irrational exhuberance. Most short selling happens on the downward slide. What it does is increase the depth of the dip.

    The whole strategy dramatically increases volatility.

    The really super big problem with short selling is that it dramatically reduces the ability of a company to use their equity to raise money. As Deep Capture points out … whenever a publicly traded company tries using its capital to raise money for expansion, they are whammed with short selling which immediately knocks down the amount they could receive by a secondary offering.

  12. http://www.gold-eagle.com/editorials_08/greene111908.html

    To do a check on these statements look at the evidence from the Bank of International Settlements. Despite the belief that banks and financial companies are deleveraging there is almost triple the amount of derivatives as there was over a year ago at $1.4 quadrillion!

    March right around the time Bear Stearns blew up. Incidentally, it has recently been discovered that Bear was likely attacked by other financial firms since it was long $12 billion in gold derivatives and was not doing its part in the gold suppression scheme. Bear was no more bankrupt than all the other major banks and brokers, however, with the incredible leverage these organizations have taken, (most all are leveraged over 30 to one), a rumor about such a firm’s liquidity will soon become a self-fulfilling prophecy since there is constant refinancing going on.

  13. and there should be a FULL SCALE investigation of the SEC’s deliberate and willful actions to support the short side of the markets

    They have done the following:

    Denied naked shorting existed when they KNEW it did

    Grandfathered fails while taking YEARS to enact Reg SHO

    Refused to take action on the option market maker exemption, thus enabling the creation of untold amounts of fake shares

    Eliminated the uptick rule

    Did NOT enforce the regulations regarding hard locate, borrow and settlement

    When they did take action against traders the fines were a JOKE

    They fired Aguirre, while protecting people with “juice”

    They protected 19 financial companies last summer, some of which enablednaked shorting, while leaving unprotected the rest of the market

    They subpoenaed journalists who were suspected of making negative comments about companies in co-ordination with short sellers, and then withdrew the subpoenas…(“juice again?”

    All of this has contributed to the greatest loss of equity in modern times. Who were they protecting and helping?Who was hurt?

    Let’s find out…

    It’s enough- there should be a FULL INVESTIGATION.

  14. Now we all know the real reason why the market went up on Friday and it had nothing to do with the announcement of the new Fed Chief Tim Geitner (sp) it was because they knew ahead of time that the Treasury and Fed was going to bail out Citi and they traded ahead of it!!! We have got to think ahead of them not after them. And clearthinker that is a very clear thought, but how are the criminal going to investigate themselves? All of the regulatory agencies themselves are corrupted in one way or another. There is to much money involved here and people are inherently greedy!!

  15. Cesar Moves,

    I will finish your sentence for you…

    “I HOPE YOU”….

    I HOPE….

    Aside from any political views, I hope that the new Administration will appoint an SEC Chairman that will at the very least — level the playing field by stopping the Financial Rape via Naked Short Selling. The Bear Raids have been made too easy when SEC Rule 201 suspended the “Uptick Rule” on July 6, 2007 — causing these wide swings in the market.

    I HOPE….

    I hope to see JUSTICE. In any other industry, a gang of Financial Rapists would be held accountable and prosecuted to fullest extent of the law. I want to see handcuffs on the perpetrators and also those that allowed the Financial Rape(s) or Bear Raid(s) via Naked Short Selling to occur under their watch.

    I hope to see ACCOUNTABLITY. The legislators that have had the whistle blown right in their ear — should be held accountable for doing absolutely nothing. Why hasn’t our elected legislators taken action by writing laws to protect investors from being Financially Raped? Orrin Hatch spoke-out against the “Fails-to-Delivers” reaching $6 Billion per Day! The ceiling should have shaken at those comments, but nothing was done to stop it! Why? Why? Why? Senator Robert Bennett made statements on the Senate Floor about Naked Short Selling as well. But, nothing was done to stop it. Why? Our government has failed to protect investors at so many levels, from elected-legislators to government regulatory agencies — nothing has been done to reinstate the “Uptick Rule” or BAN NAKED SHORT SELLING in the entire universe of publicly traded securities.

    I HOPE….

    I hope for JUSTICE. I hope to see real punishment, not a miniscule monetary fine — when the Financial Rapists are very-likely manipulating cumulative billions from investors.

    I HOPE…..

    I hope for TRANSPARENCY. I hope the DTCC/SEC will release “Fail-to-Deliver” information in real-time so that Bear Raids can be stopped! I also hope that all Naked Short transactions can be tracked — so that the perpetrators can & will be held accountable.

    I HOPE….

    I hope that everyone will help EXPOSE the Financial Raping of publicly-traded securities. Let us put the perpetrators in the SPOTLIGHT. Let the entire world know what they have done. I believe….if more people realized what has been done via Naked Short Selling, then the problem would be solved quickly by BANNING it forever.

    I HOPE….

    I hope for immediate action in the pursuit of justice.

    Hang_’em_High

  16. I just heard Secretary of the Treasury Hank Paulsen say that this financial crisis only happens once or twice in a 100-Year timeframe. Is that right?

    Oh really??? In this climate of NAKED SHORT SELLING allowed with no “Uptick Rule” employed to stop the Financial Rapists, what makes anyone think that the perpetrators are going to find religion/morality/ethics and stop NAKED SHORT SELLING (easy money)?

    Does anyone have any insight into Obama’s appointments of Geithner or Summers? Will either of these 2 guys put an end to Naked Short Selling or reinstate the “Uptick Rule”? Thanks for any insights.

    I want to see justice ASAP.

    Hang_’em_High

  17. Any questions??

    Global Task Forces To Target Short Sales, Hedge Funds
    Tuesday November 25th, 2008

    By Judith Burns Of DOW JONES NEWSWIRES WASHINGTON -(Dow Jones)- Global securities regulators have formed three task forces targeting short selling, hedge funds and unregulated financial trading, in an effort to take “urgent action” to coordinate responses to current market turmoil, Securities and Exchange Commission Chairman Christopher Cox announced Monday.
    The newly formed short-selling task force, chaired by the Securities and Futures Commission of Hong Kong, will work to eliminate different approaches to “naked” short sales, including delivery requirements and disclosure of short positions, while minimizing any harm to legitimate securities lending, hedging and other transactions.
    A second task force, co-chaired by Australian and French securities regulators, will focus on ways to increase oversight of and information about unregulated financial markets and products, including derivatives that trade over-the-counter. The third task force, co-chaired by British and Italian financial regulators, will examine ways to minimize risks associated with hedge funds, which are lightly regulated investment pools for wealthy individuals and institutions.
    The announcement followed a teleconference meeting Monday of the technical committee of the International Organization of Securities Commissions, which Cox chairs. IOSCO is comprised of securities regulators from more than 100 countries, and its technical committee includes the world’s largest markets. The three task forces will present reports when the technical committee meets in February and at when the Group of 20 nations holds a spring summit.
    Short selling is a legal practice that produces profits when stock prices decline. Short sellers borrow stocks for sale in hopes of replacing them later at a lower price. So-called “naked” short sellers do not borrow shares before selling them short, a practice that can produce punishing stock price declines, and one which the U.S. has tried to combat by tightening borrowing and delivery requirements for short sellers. Cox said that in order for attacks on trading abuses to be effective, they “must be coordinated across major markets,” and include derivatives trading and activity by currently unregulated entities such as hedge funds.
    – By Judith Burns, Dow Jones Newswires, 202-862-6692;

  18. until I see regular references to naked short selling and counterfeiting in the daily newspapers, I will not believe we have made progress. Until I see many arrested for defrauding the public and manipulating stock prices lower for their own gain at the expense of shareholders, workers and families, I will not believe we have made progress. Until I start to see some buy-ins for the shares that have been naked shorted ex-clearing, I will not believe we have made progress…

    The SEC could restore the uptick rule immediately, why aren’t they? Academic reasons? please spare us…

  19. Shorting was always supposed to be limited in practice. The brokerage allows the investor to purchase shares on margin, only fractionally backing the purchase with cash. In return, the brokerage was allowed to borrow that share and sell it.

    If the buyer happened to be margin, it could be relent, but not if the buyer had a cash account.

    In addition, if the person who bought on margin purchased it back, the potential daisy chain was collapse as everyone would be bought in to return the share.

    The system actually worked pretty good until the 90’s when the brokerages decided they wanted to become banks and only fractionally back stock ownership. Rather than fulfil their roles as custodians, they breached their customers’ trust and lied about the assets they held in custody.

    To me, the problem started when the DTC and NSCC merged to form the beast, the DTCC.

    Dismantle the Federal Reserve and dismantle the DTCC and replace it with a transparent government organization.

    It’s bullshit that something so core to our capitalist economy is based on opaque record keeping at the privately owned Fed and privately owned DTCC, who lie and manipulate for their own profit.

  20. Corrected:

    Shorting was always supposed to be limited in practice. The brokerage allows the investor to purchase shares on margin, only fractionally backing the purchase with cash. In return, the brokerage was allowed to borrow that share and sell it.

    If the buyer of the shorted share happened to buy on margin, it could be relent, but not if the buyer had a cash account.

    In addition, if the person who originally bought on margin sold the share or requested the certificate, the potential daisy chain would collapse as everyone would be bought in.

    The system actually worked pretty good until the 90’s when the brokerages decided they wanted to become banks and only fractionally back stock ownership. Rather than fulfil their roles as custodians, they breached their customers’ trust and lied about the assets they held in custody.

    To me, the problem started when the DTC and NSCC merged to form the beast, the DTCC.

    Dismantle the Federal Reserve and dismantle the DTCC and replace it with a transparent government organization.

    It’s bullshit that something so core to our capitalist economy is based on opaque record keeping at the privately owned Fed and privately owned DTCC, who lie and manipulate for their own profit.

  21. What if the Naked Shorter thought they were playing a fantasy stock game? Not knowing the trades they made that day were real. That couldn’t happen right?

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Message from DeepCapture.com

At the time much of the content on DeepCapture.com was written, the Great Financial Crisis of 2008 was either on the verge of happening or had just occurred. In those days, emotions among this publication’s contributors were raw and, in an effort to get their warnings noticed and appropriate blame placed, occasionally hyperbolic language and shocking imagery were employed.

Were we to write these entries today, a different tone would most certainly prevail.

Yet, being a record of a pivotal time in our global economic history, we’ve decided to leave the rawness unedited, with the proviso that readers take the context of the creation of certain posts into account, and that those easily offended re-consider the decision to read them.