Evidence of murder at 383 Madison Ave.

Nearly one year after its original date of publication, my video, “Hedge funds and the global economic meltdown” has finally received its first bit of serious criticism, and I can’t express how pleased I am about it.

Nearly one year after its original date of publication, my video, Hedge funds and the global economic meltdown has finally received its first bit of serious criticism, and I can’t express how pleased I am about it.

So far, at least as far as bloggers and YouTube commenters are concerned, response to the video has come in five flavors:

  1. Approval
  2. Nutty approval (“This makes me so angry I want to take to the streets in bloody revolution! It’s all [insert political party or current/past president]’s fault! ”).
  3. Tentative approval (“You’ve got part of the story right, but the real problem is…”)
  4. Random and unaware (“I’ve got a puppy named Patches. He has a wet nose.”)
  5. Nutty disapproval (“[Insert anything Gary Weiss would say]”)

What’s been missing is educated criticism based on the hard facts presented in the video. And believe it or not, this has bothered me, because it suggests that not enough smart people are paying attention.

As I mentioned, that changed this week when Mike “Mish” Shedlock of SitkaPacific Capital Management analyzed the video on his blog and managed to make a compelling contrary case. Though compelling, Mike misses the mark on a few key points and his analysis requires a rebuttal, which I’ve decided to offer here as it would probably be of interest to DeepCapture.com readers.  I’ve also invited Mike to respond, and will print whatever he offers at the end of this post.

(If you’ve not seen the video yet, I encourage you to watch at least the first five minutes now, otherwise nothing that follows will make much sense.)

Shedlock frames his criticism of the video in terms of what he identifies as three assumptions (printed verbatim in black, with my response in blue italics).

1. That whoever bought way out of the money Bear Stearns PUTs “knew” something and illegally acted on it. I agree with this.

2. The same institution that bought the PUTs was illegally shorting shares. I think this is a safe assumption.

3. There is a conspiracy to protect those evil doers. I do not agree that there is a conspiracy to protect the short sellers who attacked Bear Stearns any more than there was a conspiracy to protect Bernard Madoff before his scheme blew up. What “protects” them is Wall Street culture, and it’s no conspiracy…it’s common knowledge.

Shedlock then attempts to explain how the market really works via four statements of fact which he expects will undo my arguments, but which in reality only support them.

Here again, I present Shedlock’s facts verbatim, followed by the information he apparently did not have when he originally wrote them, in blue italics.

Fact #1: When someone buys PUTs the market maker or counterparty who sold them is short those PUTs. This is a mathematical statement of fact. This is 100% truth.

Fact #2: The market maker who sold the PUTs, shorts stocks as a hedge against those short PUTs.
This is also 100% truth, and an indispensible component of illegal naked short selling, which requires the options market maker to sell the stock naked short to the fund buying the puts. This is part of the married put strategy we’ve claimed from early on facilitates illegal short selling. As far back as 2003, the SEC expressed concern about married put strategies as a means of circumventing multiple market regulations. In this 2007 paper, an economist explains how a combined strategy of married puts and reverse conversions provided the engine that powered the naked shorting epidemic that grew unabated until changes were finally made in the wake of Lehman’s demise.

Fact #3: The lower the share price, the more shares the market maker has to short to stay delta neutral. Also true.

Fact #4: Market Makers are not governed by naked shorting rules. Again, Shedlock steals my line. Prior to the repeal of the options market maker (OMM) exception of Regulation SHO, OMMs were not bound by the locate and delivery requirements of that rule. So, it’s entirely predictable that options trading would play a key role in any effort to circumvent Reg SHO.

The existence – and illegality – of these kinds of tactics are documented in this November 2009 administrative action brought by the SEC against Rhino Trading and Fat Squirrel Trading (one of only two enforcement actions specifically alleging naked short selling filed in the Commission’s history). In it, you’ll learn how reverse conversions and “resets” (the call-based alternative to the married put) were used to illegally manipulate other stocks down.

At this point, Shedlock has spelled out the entire philosophical foundation for his disagreement with me, and yet we’re apparently in the awkward position of not disagreeing about any of the parts that really matter. The actual disagreement seems to be based on our interpretations of the implications of these facts, in my case informed by a slightly more detailed (though not very broadly-applicable) knowledge of the tactics used by illegal stock manipulators. That Shedlock is not familiar with these tactics speaks very well of him as an investment manager, in my opinion.

So, while Shedlock claims, “the [options] market makers shorting Bear Stearns did so for purely mathematical reasons, to remain delta neutral” I assert that this necessity, combined with their exemption from Regulation SHO’s locate and delivery requirements in place at the time, made them the perfect counterparty to a short-selling hedge fund seeking to warp the market for Bear Stearns stock through the generation of artificial supply.

Shedlock further asserts that Bear’s demise was the inevitable product of its own greed and toxic balance sheet. I respond by agreeing that Bear probably was destined to go under, and in capitalism, that’s ok. However I further point out that Bear had $18-billion in cash on hand when the assault began, and so the process should not have taken just one week. In a civilized world, even when someone is on their deathbed, it’s not ok to hasten death through forceful application of the pillow; and particularly not when the incentive for doing so is pecuniary.

As promised, the space to follow is reserved for Mr. Shedlock to offer his rebuttal.



  1. When I first saw Mish’s post, it came across as reasoned and articulate, but it glossed over the whole concept of what derivatives are supposed to be.

    Derivatives DERIVE their value from an underlying asset.

    For example, farmers might sell a contract to sell wheat at a certain price come harvest and speculators might buy and sell that future’s contract, some speculators believing the farmer sold to cheaply and others believing his price was too rich.

    But the price of the wheat come harvest should only be about supply and demand of the wheat.

    Over the years, Wallstreet has perverted things sound badly that the underlying assets now derive their value from the paper contracts.

    It’s the supply and demand of the paper supplied by the speculators that sets the price of the underlying asset.

    Speculators can drive the price of silver so low no one wants to mine it or wheat so low no one wants to grow it. It creates perverse situations where you can fish the very last Atlantic salmon and the price doesn’t go up.

    These derivative contracts are effectively phantom supply and it’s gotten out of control.

    What used to be a side bet can now be used to bankrupt banks, brokerages and development stage companies and put millions out of work.

    It’s a zero sum game when value doesn’t come from the growth in the value of the underlying asset.

    A zero sum game means the billions that Wallstreet received in bonuses exactly equals the amount the rest of us are losing.

    And no real value is created except for the shuffle from my wallet to theirs.

    Mish, everything you say is exactly right, but the outcome is not what capitalism is supposed to be all about.

    1. What used to be a side bet can now be used to bankrupt banks, brokerages and development stage companies and put millions out of work.

      And you should add: under certain circumstances, whole countries.

  2. At one time, value was created by taking inputs (energy, raw materials, labor, manufacturing facilities) to CREATE products that consumers DEMANDED.

    People got rich by making the life of the average working stiff better. Whether it was the railroad tycoons linking the country together or the internet software tycoons linking the country together or whether it was the latest drug saving millions of lives or whether it was a new invention like the electric motor or the car or the computer or the search engine, it was all about innovative people, working hard to better the rest of us.

    Sure there were cartels and monopolies, but so what. They benefited and so did the rest of us.

    America was great because it made stuff.

    This is who gets rich now. What they do is pick money from the public’s pocket to put in their own. I like to call them pick pockets.


  3. If you ask me the game is deliberately made more complicated than it needs to be. In addition it appears that there are loopholes that are only available to a limited number of players with privileged positions. And you call that a free market?

    If this market were anything close to being free, there would be hundreds of companies lined up to take over the top spot from Goldman Sachs. But because of barriers to entry created and maintained by government regulators, there is no competition in sight.

    The game is rigged and on top of that the participants are gaming the system. Look at High-Frequency Trading, for example. Naked Short Selling appears to be only a symptom of a system that is corrupt through and through. We don’t need reform, we need a revolution. Too bad the system was not allowed to crash and burn in 2008. The term “creative destruction” was never more appropriate.

    The heads of the Wall Street aristocracy must roll and there must be a new and open system put in place to replace it. With today’s computer and networking technology, this should be a snap. Give the job to Google and I’m sure they could come up with a better, more fair and equitable system in a month’s time. Heck it’s hard to imagine a worse system than what exists on Wall Street today.

    Of course this would expose the King’s New Clothes and would send shock waves through the financial sector exceeding 10.0 on the Richter scale. Wall Street’s Temple would be completely destroyed – hopefully forever. And the City of London would disappear into the ocean along with it. Good riddance!

  4. Ney: Yes. However, there are still far too few to be able to make much change in the stock market. Most people still believe the stock market is too respectable to carry on a scam such as it is.


    Richard Ney on the Role of the Specialist

    “The story is told that after he had been deported to Italy, Lucky Luciano granted an interview in which he described a visit to the floor of the New York Stock Exchange. When the operations of floor specialists had been explained to him, he said, ‘A terrible thing happened. I realized I’d joined the wrong mob’” (1Ney, 8).


    The New York Stock Exchange is not an auction market (2Ney, 86), though many investors still hold onto that image. It is a rigged market. Volume is an effect of price. Prices are controlled absolutely by the specialists, the ‘market makers’ in individual stocks. It was this discovery that led Mr. Ney to eventually give us small investors a priceless gift: enlightenment.

    All three of the major networks were wary of having Ney appear. NBC banned only two people from appearing on the Tonight show with Johnny Carson: Ralph Nader and Richard Ney. Not only do large banks, brokerage firms, and corporations advertise on television, they also are the largest stock holders (2Ney, 33- 34).


  5. Deepcapture, you need to tune down your spam guard.

    If you footnote a post with more than two links, it deletes the post. People that take the time to footnote with many links find their time composing the post completely wasted.

    If you break the post into multiple posts, it refuses to post them because “slow down, you are posting too quickly.”

    1. Sorry about that. Just know that comments with three or more links (or which are flagged as spam for containing a typically spammy word) are not deleted. They’re just held in moderation until I can check and manually approve them. I check several times each day. Based on your concerns, I’m going to relax the link limit and see how that goes.

  6. Assumption 3. There is a conspiracy to protect those evil doers

    I am firmly in this camp. After all who wouldn`t bend a few rules if they were in a position of power the likes of which has never before been seen, and thought they were smart enough to know what was best for everyone. Remember certain SEC officials declaring that they intended to prevent “market volatility and short squeezes”? They neglected to say HOW they intended to prevent these from happening. But one need look no further than the Madoff Exemption to understand. The option hedging was the same. The concept of a free market is an old wives tale that never really existed. But when the regulators take sides against the general small investing public in such a vehement way something is seriously wrong.

  7. Judd –

    The term “conspiracy theory” has become a PC label used to discredit inconvenient facts.

    Why not just focus on what’s factual or reasonable?

    In other words, instead of bandying about a propaganda term that’s meant to shut down rational discussion, let’s simply focus on whether something is “documented,” “probable but lacking a smoking gun,” “plausible but not yet documented,” “reasonably proven,” “incontrovertibly proven,” “irrational,” or “impossible”?

    These are nuanced and graduated terms that have clear criteria that everyone can agree on.

    Actually, when I hear someone distance themselves from an argument/hypothesis SOLELY on the grounds that it is “conspiracist” – they begin to lose their credibility.

    Go where the evidence and the logic take you, let the conspiracies fall where they may..

    Don’t be intimidated by labels, if you’re clear in your conscience about who you are and what you’re doing.

    Reason, truth, honesty, fairness, respect – these are tools available to all of us equally.

    Never doubt they will win in the end.


  8. buybuybuy,

    In regards to your comment re:agreeing with Assumption 3. There is a conspiracy to protect those evil doers.

    It might go a little deeper in that there is also a need to cover-up just how far asleep at the wheel the congressionally mandated provides of investor protection have been and how some of them have willfuly functioned in a facilitative role. It is crucial to withold from the investing public that many of the historical investments in especially development stage U.S. corporations perceived to be an “easy prey” to these attacks never did have a chance for success.

  9. If you lent money to Goldman Sachs, denominated in Greek currency, would you expect a higher interest rate then lending the money to Greece?

    I would as there’s more risk.

    What GS and others figured out is by naked shorting government bonds, whether it be US, Greece or California, they are effectively able to borrow money at the same interest rate as the governments are getting and the lender is none the wiser.

    Actually, that’s not quite true. The extra supply of counterfeit bonds pushes up the interest rate the government and tax payers have to pay.

    What do the politicians have to say about this counterfeiting? They support it.


    1. By the way, did you notice the propaganda in the last article. It says the Obama administration rejected clamping down on naked shorting and CDS’s, but then the quote is from a former JP Morgan investment banker, now at a right wing think tank, Citigroup and the privately owned Federal reserve, three parties that benefit from counterfeiting and using derivatives to set the price of the underlying asset. There are no quotes from actual government officials.

      1. Seems to me the vulture capitalists, the free-market octogenarians that comprise the right-wing in congress are all for these instruments in the name of a ‘free’ market.

        Or is it free ‘ride’?

  10. I found deepcapture.com and various videos because I check Mish’s blog regularly. However, it was only with your comments about deep capture and the implications that lead me to understand that, while Mish and others in the econ-blogosphere, talk about an ‘Emperor with no clothes’, (the disconnect between the market indices and the reality of growth on the ground) we still haven’t seen any correction yet.

    This annoys me, as it seems that the entire system isn’t based on underlying value at all, but the opinions of the value by the majority of holders.

    Your rebuttal was fabulous, and I knew there was something bothering me with Mish’s response. You have elucidated it for me in your statement: “I assert that this necessity, combined with their exemption from Regulation SHO’s locate and delivery requirements in place at the time, made them the perfect counterparty to a short-selling hedge fund seeking to warp the market for Bear Stearns stock through the generation of artificial supply.”

    Excellent response! I hope that Mish is willing to come back and offer a response.

  11. Wait, are you saying the purchase of puts priced radically lower than the then current market price was executed with manipulative forethought because the buyer knew that the seller of the puts would have to naked short like crazy flooding the market with “artificial supply” to remain delta neutral? So all one has to do to “warp” or manipulate a stock’s price on the downside is buy bunches of low priced puts because you can count on the naked shorting put seller to do the “dirty work” for you? Why doesn’t or didn’t given the new restrictions this happen all the time to all different sorts of companies then? Low priced puts are very very cheap to buy … what has stopped the same thing from happening to hundreds of companies? Have you done the calculations on how much stock would have to have been sold for the put seller to achieve delta neutral while the stock fell? What % of the known FTDs does it account for? I doubt it will be all that significant.

    I agree that the unbelievably perspicacious put purchase in Bear is suspicious … but it was not the magic bullet … 18 billion in cash means nothing when you owe 35X that (come on, you understand that right???). Bear’s leverage was mostly short term, mostly on the basis of interbroker goodwill and these loans could be revoked at any time. Their credit structure was like a house of cards. Remove a few loans and that would trigger covenants on others and so on and so on. That’s how it happened so quickly. The company depended on flimsy short term credit. 18 billion of cash might as well have been 18 cents.

    I do think your work exposing the fabrication of borrow via matched option trades is golden. I think or hope that will lead to scrutiny of the practice and a prohibition on it, which is great for the market. Kudos there but not on the Bear stuff.

  12. Wall Street understands a simple fact. Human nature creates buyers. People believe hype, trust people they have never met, buy things they haven’t researched, and believe in “get rich easy”. Wall Street knows this and has created a culture that makes money on selling. They sell into hype, they know that fear can create panic, they understand that the SEC is either ignorant or complicit, and so they flash trade, naked short, use CDS and play every game in the book to take our money. And what has Obama done about it? Seen any perp walks for BSC, LEH? Cramer’s still on TV a YEAR after Jon Stewart showed the world that Jim was a manipulator of the markets…

    Unless something CONCRETE happens…


  13. I’m not sure how the hedge works.

    Owning a call and selling a put at the same strike price is the same as owning 100 shares (S=C-P).

    Imagine the scenario where everyone was selling him puts. Wouldn’t the contrarian in him expect the market to move against the crowd?

    For example, if he sold $20 puts on a stock trading at $22, he could collect the premium and $22 by going short, against a risk of buying the stock at $20, locking in a $2 gain.

    But what happens if it goes up? He still has to cover the short and could really easily end up losing money. If it went to $25, he would be down a dollar, minus whatever he got for the premium. It seems that would be likely if the sheep were betting the other way.

    It seems like the market maker is taking all the risk for someone else who is getting the bigger option benefit on the put if it goes up.

    Wouldn’t the option market maker prefer to sell an equal number of puts and calls, so he collects all the premiums and manipulates the price to the point where the most options contracts expire worthless (max pain)?

    1. Thanks for the link. I highly recommend this candid interview with Harry Markopolos. For those who may have forgotten, Markopolos was the one that blew the whistle on Madoff early on, only to be ignored by the SEC.

      Markopolos calls for an end to both the Democrats and the Republicans. He encourages everyone to vote for independent candidates.

      He speaks in more detail in this interview about a subject he brought up at the Congressional hearings, which is the involvement of Organized Crime investors with Madoff. One thing I’ve been wondering for a while is whatever happened to Sonja Kohn, the founder of Bank Medici. Her “bank” was another one of the feeder funds that kept Madoff’s Ponzi scheme alive. She was based in Europe and apparently attracted funds from the Russian Mob.

      Soon after Madoff’s scheme collapsed, Kohn completely disappeared from sight. She has since reappeared and is under investigation, but no charges have been brought against her. Perhaps she is “gray-mailing” people in positions of power – threatening to expose them if they go after her.

      I wrote an article about Madoff and Markopolos in early 2009 that talks about the relation between Kohn and the Russian Mob.
      The Madoff Connection

  14. Geitner serving his masters faithfully!!

    Re: Greece wants US to get tough with hedge funds
    Yea, you called that one…one of the biggest racketeers has already responded with a ‘warning’.

    BRUSSELS (Reuters) – U.S. Treasury Secretary Tim Geithner has written to the European Commission warning that plans to regulate hedge funds and private equity firms could cause tensions with Washington, the Financial Times reported.

    EU defends hedge fund rules against U.S. critics

    although the article has changed from when I first copied the link, the


  15. It’s not just our regulatory agencies and media that are captured..its our Government also.

    Naked Swaps Crackdown in Europe Rings Hollow Without Washington
    Share Business ExchangeTwitterFacebook| Email | Print | A A A By Ben Moshinsky and Aaron Kirchfeld

    March 11 (Bloomberg) — European politicians and regulators could initiate a continent-wide ban on speculative trading of sovereign credit-default swaps tomorrow. Making it stick without the Americans won’t work.

    New York and London dominate swaps trading, and both have resisted greater regulation. Last year, U.S. regulators and Congress rejected a proposed ban on buying credit-default swaps without owning the underlying debt. Adair Turner, chairman of the U.K. Financial Services Authority, said yesterday that these so-called naked swaps weren’t the “key driver” of the Greek debt crisis and it would be wrong to rush to ban them.

    “You need to get the U.S. on board, otherwise the effect will be minimal because trading will simply move elsewhere,” said Jan Hagen, head of the financial services group at the European School of Management and Technology in Berlin. “A ban would allow European politicians to tell voters at least they’re doing something.”


  16. Apparantley not all politicians are crooked or captured..or at least not this one and Ron Paul!!!


    Senator Calls For Aggressive Financial Reform, Deplores Current ‘Incremental’ Steps
    views85 Get Breaking News Alerts

    A senator is calling for the break-up of megabanks and a firmer separation between Main Street banking and Wall Street trading, joining the ranks of leading economists and business titans demanding aggressive financial reform far beyond what the Obama administration and Democrats in Congress are pushing.

    In a Thursday morning speech on the Senate floor, Sen. Ted Kaufman (D-Del.) blasted the “incrementalism” approach to fixing the nation’s broken financial system, laid bare by a financial crisis that wiped out trillions of dollars in wealth and sent the economy into a tailspin not seen since the Great Depression.

    Rather than nibbling around the edges, Kaufman wants to impose strict limits on financial firms’ activities; significantly cut them down in size; and wants Congress to act more forcefully because federal banking and securities regulators failed to protect the public from an increasingly dangerous financial industry.

    The fact is, he intoned, “the government’s response to the financial meltdown has only made the industry bigger, more concentrated and more complex.”

    Because of that, “[f]inancial regulatory reform is perhaps the most important legislation that the Congress will address for many years to come,” said Kaufman, Vice President Joe Biden’s replacement in the Senate. Otherwise, “if we don’t get it right, the consequences of another financial meltdown could truly be devastating.”

    Simon Johnson, former chief economist of the International Monetary Fund, professor at the MIT Sloan School of Management and contributing editor to the Huffington Post, said it’s “the speech for which we have been waiting.”

    Excerpts below…

  17. Sad thing about the otherwise stellar Markopolis interview noted above:

    Why the hell did he let scumbag Einhorn write the forward to his new book?

    Einhorn is no hero. On the contrary, he is guilty of exactly what we can’t afford to indulge anymore in this country, or world, for that matter.

    Markopolis undercut his own argument by bringing trash like Einhorn into the debate.

  18. HM wouldn’t be given this much play in the media unless his popularity could provide gift-wrapping for Einhorn & Co….thus nicely confusing the issue for the casual reader, who thinks Markopolis=whisteblower=Einhorn=reformer.

    Look around. Many people are getting themselves Einhorn wrapping paper.

    It’s quite funny, actually.

    1. And I thought, until now, that Markopolis would have been a good SEC head.

      Reconsidering, I think he’d just destroy what’s left of the Financials in the name of mark-to-market and so-called ‘price-discovery’…

      Having shorted all the while with Einhorn, Sen Shelby, and the rest of the cabal…

      Surely, Harry the Greek can’t be proud of what these bastards have been doing to Greece, can he?


  19. Judd, you can title this one “Evidence of Mass Murder on Wall Street”


    Lehman Bankruptcy Report: Top Officials Manipulated Balance Sheets, JPMorgan And Citi Contributed To Collapse

    The examiner in charge of investigating the bankruptcy of venerable Wall Street investment house Lehman Brothers, the most expensive bankruptcy in U.S. history, said in a report publicly released Thursday that senior officials failed to disclose key practices, opening them up to legal claims, and that JPMorgan Chase and Citigroup contributed to the firm’s collapse. In addition, the report concludes that the firm’s auditor, Ernst & Young, failed to meet “professional standards.”

    The exhaustive report was unsealed today by Judge James M. Peck, who said the report reads “like a best-seller.”

    The examiner, Anton Valukas, also found that parties have claims to pursue against JPMorgan Chase and Citibank in connection with their behavior regarding the modification of agreements with Lehman and their increasing collateral demands in Lehman’s final days. These demands had a “direct impact” on Lehman’s diminishing liquidity — its cash on hand — which was a prime reason behind the firm’s demise.

  20. Please note: The’ve already gotten their bonuse and golden parachutes and we are left holding the bag
    . Ain’t life grand!!! This post is from investorsvillage. Blackbart I believe wrote it.

    Lehman…Where Are The Arrests?
    Caught doing what Refco did. Flopping repo’s at the end of quarters. Look who knew and did nothing…..

    “The Examiner concludes that colorable claims of breach of fiduciary duty exist against Richard Fuld, Chris O’Meara, Erin Callan, and Ian Lowitt, and that a colorable claim of professional malpractice exists against Arthur Anderson Ernst & Young.”

    “an apparent admission that FRBNY and Tim Geithner specifically knew that the marks that these banks were taking on their assets was materially and intentionally false.”

    “So The SEC knew, and they too did nothing.”


  21. The bankruptcy examiner at Lehman Brothers issued a 200 page report on who was responsible for torpedoing Lehman Brothers. Was it hedge funds? Naked shorting? No in fact it was Lehman Brothers itself.

    Lehman Brothers engaged in transactions to make their balance sheet appear safer than it really was. According to Lehman’s own COO, the transactions served no financial purpose other than to make Lehman’s capital position appear to be better than it really was.

    The comments of the bankruptcy examiner seem to exonerate hedge funds who at the time were skeptical of Lehman’s accounting. As it turns out they were one hudred percent right and profited from it.

    Now that Deep Capture has once again been proven wrong by a regulatory authority. What a shock! Will it issue an appology and remove the eroneous information from its website? Don’t hold your breath.

    1. “…Deep Capture has once again been proven wrong by a regulatory authority”

      Ms. Shapiro, is that you?

      Surely you jest. I mean… yes Lehman was cooking the books, but how gullible are you? Do you think Lehman was the only one using questionable “accounting” methods? And the revisionists have now showed up 18 months post mortem to place blame squarely on the deceased. How convenient. Hmmmm…


      The truth is the captured government regulatory authorities do not regulate. They prefer to protect big money self-interests. At the root of all our problems is a grotesquely, morbidly obese government. You think it might cost a lot of money to fund all this goverment excess? Is it a coincidence we have an exorbitant debt & continual deficit spending policy? I think not.

      Speaking of morbidly obese government:
      And there are many more failed agencies. Too many to list them all. See for yourself…

    2. Greenday, I appreciate your comment, mostly because we don’t get enough contrary voices here. I hope you’ll continue participating in the discussion. Having said that, allow me to point out the weakness in your premise, and why it’s a good example of how our two “sides” view the world.

      We feel that every public company deserves access to fair markets. You feel that only certain companies do, and you get to decide which.

      If Lehman made mistakes, as has long been apparent (and as Deep Capture has already said numerous times), then there are appropriate ways of dealing with that which do not include illegally warping the market for the company’s stock.

      Would Lehman have been a good short? Sure looks that way. But that fact does nothing to affect the company’s right to see its stock traded fairly from cradle to grave.

      1. Mr. Bagley-

        The independant bankruptcy examiners did not conclude that the “illegal warping” Lehman Brothers stock contributed to its demise in any way. Hence your continued insistance that it did goes against the stated opinion of independant examiners who carefully analyzed the situation. The soul reason why Lehman Brothers does not exist today is because it made bad business decisions on a highly levered basis which erased its equity.

        To argue that Lehman did not have “fair access” to the financial markets is ridiculous. Lehman had the chance to offer equity to the public at much higher prices and refused. They even had the chance to raise capital from Warren Buffett, but refused. Had they done so, this would have enhanced Lehman’s reputation and allowed them to raise even more capital. Lehman still refused.

        The argument that Lehman “made mistakes”, seems akin to the old argument that Enron “made mistakes”, but was really brought down by illegal market manipulation. Wow poor Jeffrey Skilling spending wrongfully spending twenty five years in the pokey for nothing! Lehman didn’t just “make mistakes”, they made financial transactions that served no other purpose but to hide their true financial condition from potential investors. Earth to Judd they didn’t just spill some milk, they lied.

        Several hedge funds stated at the time that Lehman was indeed mistating the value of its assets and using the decline in the value of their debt to inflate their earnings. Deep Capture accused these funds of “lying” to support their short positions. Given that the independant bankruptcy examiners and Lehman’s own COO concluded that these hedge funds were 100% correct in their assertions shouldn’t Deep Capture now retract its accusations and appologize? That’s what any legitimate news organization would do, but I’m not holding my breath for a printed appology.

        If a private investors refused to invest in a privately held highly levered entity where it was clear that the managers were lying about the company’s financial condition we’d call them prudent. But when public stockholders do the same thing its somehow the fault of shadowy hedge fund’s.

        Why is this? Because those like Feld who blame their company’s woes on market manipulators are usually just trying to draw attention away from their own incompentance and/or fraud. By blamming others they can continue to issue stock at inflated prices and continue living the good life with huge slugs of compensation in both cash and stock options. In Feld’s case, he hopes to use this defense in hopes that potential jurors will acquit him when he is inenvitably indicted.

        1. You’re not understanding what I’m saying. So I’ll try again.

          Legitimate short selling is fine, and Lehman was clearly a great short.

          Manipulative naked shorting is always wrong.

          Feel free to heap evidence of screwball accounting by LEH all you want. It doesn’t change the fact that illegal short selling occurred in massive amounts in the days immediately prior to the company’s bankruptcy, and indeed the depressive impact on share price generated by that illegal shorting created the liquidity crisis that directly led to the bankruptcy.

          1. “Feel free to heap evidence of screwball accounting by LEH all you want. It doesn’t change the fact that illegal short selling occurred in massive amounts in the days immediately prior to the company’s bankruptcy, and indeed the depressive impact on share price generated by that illegal shorting created the liquidity crisis that directly led to the bankruptcy.”


            The paragraph above is pure nonsense and I think you know it.

            An independant court appointed bankruptcy examiner wrote a 200 page report and disagreed with what you claim is fact. How can that possibly be?

            What caused Lehman’s bankruptcy, according to the examiner, was a severe decline in its assets that wiped out its equity. No independant investor was willilng to fill this capital hole because they wouldn’t have earned acceptable returns and likely would have lost everything. Not even Judd Bagley would have filled the capital hole.

            Deep Capture also slammed hedge fund manager David Einhorn for his public criticism of Lehman Brothers at the time. The report shows that Mr. Einhorn’s criticisms of Lehman were absolutely correct. Will Deep Capture apologize to Mr. Einhorn and retract its comments?

          2. That bank examiner report…? Two-thousand-two-hundred pages in the main narrative volumes (the appendices are another 1800 pages).

            Then again, in the screwball world of ANSS & GAAP I am not surprised that folks so readily confuse “200” with “2200.”

            As for “wiping out their equity” – what else would you call the precipitous decline in the price of LEH common-stock? It’s the Deep Capture thesis that abusive naked short selling was a key contributing technique in that process. Let’s not forget too that a large round of fails-to-deliver in LEH stock took place in July 2008, two months before their final collapse into bankruptcy. (It’s as if the financial terrorists were practicing their methods and testing LEH’s vulnerability to them.)

          3. Jim-

            Deep Capture’s thesis shows a deep misunderstanding of Lehman’s business model. Your own comments show a misunderstanding between the market value of Lehman’s equity and the private market value of Lehman’s equity.

            I’ll take the second point first. The actual value of Lehman’s equity will be the cash that it receives from its assets discounted to present minus the cash it will have to pay for its liabilities discounted to present. If the cash value of the liabilties exceed the equity than the equity is worth zero. Lehman declared with the bankruptcy court liabilities that were worth far in excess of the value of their assets. To date it seems as though the sale of its investment bank and real-estate to Barclays and the sale of its asset management platform will not be enough to finance its liabilties. Its unknown at this point if the discounted cash-flows from these assets will exceed the price the buyers paid for them. Its highly unlikely that the cash-flows will exceed the liabilities.

            This is quite different from the actual public market value of Lehman’s equity. The actual market value is the aggregate perception of the market participants at any given time. Though the two metrics should eventually converge, for various reasons there maybe huge discrepencies for periods of time. This will especially be true if information about the actual value of the equity is hidden from the public as it was here.

            There are two important lessons here. No matter the fall in the shareprice doesn’t effect the actual value of the equity. Since the value of Lehman’s liabilities were greater than its assets, its equity was worthless regardless of how the market priced it. In fact, even if Lehman were a private company with no public “share price”, its equity would still be worthless.

            Further the allegation that Lehman’s liquidity crisis was triggered by the movement in its share price is simply ridiculous and those that actually think this is true misunderstand Lehman’s business model. A plain vanilla bank makes loans to individuals and businesses and funds those loans and its operations with deposits from its community. It makes money on the difference between what it gets paid to rent its money out and the money it has to pay to depositors. Lehman however didn’t collect deposits and instead relied on short-term funding from counterparties in the REPO market. Every day, Lehman had to borrow $200B just to keep its doors open. It had just $2B in actual liquidity set aside to weather storms. The buyer of a REPO requires collateral to make this loan however. Usually the seller of the REPO puts up high quality assets such as U.S. Treasuries or other securities that are backed by the full faith and credit of the U.S. Government. However Lehman had taken excessive risk in its asset base and doubled this risk when the financial crisis became apparent. This created a two fold problem. No one would buy enough of Lehman’s assets to support its capital deficet and it didn’t have sufficient collateral to roll over its debts.

            The Deep Capture thesis assumes that if not for Lehman’s low stock price it would have either been able to raise over $200B in capital in a matter of hoursm, that its counterparties would have accepted its collateral which was depreciating every day, or that it could have monetized its assets in time. This is just silly. No matter if Lehman’s share price was $2, $40, or $500 at the time the result would have been the same. The equity would have eventually been worthless.

            You have to wonder why Deep Capture tries to fob off a thesis that has obvious flaws. Why is it that Deep Capture despite evidenc to the contrary tries to shift the blame from Lehman executives who put themselves in such a situation to begin with and on to hedge funds who themselves were the ones who warned about Lehman’s decisions many months prior.

  22. Larry Kudlow was in rare form last night on CNBC. His message was that due to the SEC being inept thank goodness we had the short sellers there to take care of Lehman Brothers in the SEC’s absence. Now let me get this straight: a 151-fold (15,000%) increase in FTDs associated with abusive naked short selling (ANSS)while the share price of Lehman Brothers was falling off of a cliff was a good thing i.e. the end justifies the means. Okee-dokee!

  23. Dr. DeCosta. Larry Kudlow is a Jackass and a shill for wall street. PERIOD!! He does not even try to hide it.

  24. “Surely you jest. I mean… yes Lehman was cooking the books, but how gullible are you? Do you think Lehman was the only one using questionable “accounting” methods?”

    Lehman wasn’t just using “questionable accoutning methods”. It was using financial transactions that served no other purpose than to hide its financial condition.

    I don’t know if Lehman was the only one doing this but it several things seem clear.

    #1 Lehman was using the decreasing value in its debt to inflate its earnings more so than other firms.

    #2 Unlike GE and Goldman, Lehman refused a necessary life-line from Warren Buffett.

    #3 Lehman was likely invested a greater percentage of its capital base in assets that greatly declined in value than other firms.

    #4 Lehman was a highly levered entity.

    “The truth is the captured government regulatory authorities do not regulate. They prefer to protect big money self-interests.”

    But the big-money self interests aren’t who you think they are. The volume of shares held long dwarfs the number of shares sold short by a huge margin. Obviously the financial interests of long investors greatly outweighs the financial interests of short-investors. Why is it that Deep Capture believes that it is the relatively small pools of money that are doing the capturing?

    “And there are many more failed agencies. Too many to list them all. See for yourself”

    The agencies you list aren’t failed at all. Government isn’t perfect but by and large gets it mostly right. I am guessing that if you live in this country you have a roof over your head food to eat and don’t live in fear of your physical safety. You also have a pretty good social safety net so you likely won’t have to comprimise any of those things should you financial misfortune befall you. Who do you think is responsible for these things? The U.S. government along with all the agencies that you claim have “failed”.

    1. “Adding up all unfunded liabilities for Social Security, Medicare, Medicaid and Government sponsored pension funds gives us a figure slightly in excess of $100 TRILLION dollars. That’s TRILLION with a ‘T’. The Federal budget deficit for fiscal 2009 will be approximately $1.84 TRILLION. That’s TRILLION with a ‘T’. Over the next ten years the projected deficit will be $9 TRILLION”


      We currently have an approx. $2 Trillion budget deficit. That’s a Two Million x Million dollar DEFICIT… as in one year’s excess spend… If you don’t see a problem with the size of our government, you’re a blooming idiot.

      All these innovative financial shenanigans, whether they be CDOs, CDSs, ANSS, whatever… to Wall St it’s jut playing games with numbers. It is indeed unfortunate to be without a trust fund these days, as all this innovation has had the effect of destroying the engine of real economic growth in this country (the middle class). That middle class is what built this country & is the only way back to prosperty. But middle class jobs continue to be transfered offshore at an accelerating pace. How can this possibly end well for the USA? Oh right, the government will take care of us… In a couple years, MBAs will be competing to land that job as the greeter at WalMart.

      How did this happen? Government has undergone a corporate takeover. It no longer represents the interests of the constituency. It no longer respects the Constitution. How is it acceptable that none of our congress critters actually read the F-ing legislation they vote on? You think they’re working for you? HAh! The jokes on you then.

      This “social safety net” you speak of… just more unfunded liability. It’s all gonna evaporate as soon as our esteemed economists figure out we can’t pay for it. Perhaps we will retain some of our beloved entitlements, the only change being that inflation will have eroded the value of the dollar in the next couple of years to 1/5 of what it is worth now.

      The security you seem to think you have is an absurd notion. Our government is running the biggest confidence game in history, founded on the labor & reputation of previous generations (back when we used to build things). All we “produce” today is innovation in gaming theory (i.e. advanced gambling techniques). Confidence in this system is wearing thin. I don’t know what it will be like, but I’m certain we’ll have a complete financial system reset in the next few years. The only question is how long Madoff err… Bernanke can manage the financial markets.

      I consider corrupt morbidly obese government to be a failure. In private industry, if a business can’t make a profit after a reasonable amount of time, it fails. Why is it that you believe our government is something other than a complete & utter failure? What exactly is it that our government does well? We can kick ass in a fight I’ll give you that, but that’s about it.

      Good luck with that whole “government gonna take care of me” thing… You might want to start thinking how to make a can of tomato soup (or perhaps cat food) last all week.

      1. “How did this happen? Government has undergone a corporate takeover. It no longer represents the interests of the constituency. It no longer respects the Constitution. How is it acceptable that none of our congress critters actually read the F-ing legislation they vote on? You think they’re working for you? HAh! The jokes on you then. ”

        What you are describing is a Kleptocracy. A Kleptocracy is a corrupt system of government where only the select few who curry favor with the government can make returns on their capital. What happens in these systems is that no one wants to put capital to work because of the risk that the government will just take their returns away from them. The result is that no one wants to hold the currency, which causes severe inflation and a huge reduction in the quality of life of anyone who isn’t part of the Kleptocracy. Zimbabwae under Mogabi is a perfect example of this.

        However that’s not the case in America. In America people are willing to put capital to work because they rightly believe that they can make adequate returns on capital.

        The fact is that you likely have a much better quality of life than you would if America were truly a Kleptocracy. You have an adequate roof over your head, food whenever you want it, and likely a decent job that allows you to make a living. If you should lose that job you won’t starve, the government will write you a check while you look for another job. If things really get bad you won’t have to have your children starve as the government will give you food stamps and welfare.

        This can’t happen in the world that you describe.

        Plus I never said that the government would take care of me. The government protects a system that allows me to get a job so I can take care of myself.

        1. “What you are describing is a Kleptocracy. A Kleptocracy is a corrupt system of government where only the select few who curry favor with the government can make returns on their capital. What happens in these systems is that no one wants to put capital to work because of the risk that the government will just take their returns away from them. The result is that no one wants to hold the currency, which causes severe inflation and a huge reduction in the quality of life of anyone who isn’t part of the Kleptocracy.”

          Well stated. This concisely describes the relationship that exists between large investment banks & our government. You also hit upon the prime reason that record numbers in the US have taken to acquiring & holding precious metals to preserve the wealth they have from the ever eroding forces of inflation on our currency (BTW another failure of the Federal Reserve).

          You’re very short sighted in making grand declarations to the effect of “it can’t happen here”. In fact, you’re absolutely wrong. It has been happening since the Fed was created. Consider that the dollar has already lost 98% of it’s value since the inception of the Federal Reserve in 1913 (evidence of failed quasi-government kleptocracy). Servicing the interest payments on our massive debt which will grow exponentially with interest rate increases (if there ever is economic recovery), is what will facilitate the lowering of our standard of living. It’s not far away. And it ain’t like we have a choice in the matter either.

          I suspect you, as a card carrying liberal, don’t understand the concept of money. You seem to know all about spending it & have grand schemes in that vein, but I don’t think you grasp what money truly represents. Perhaps I can help…

          In terms of trade, consider that, at its essence money is a store of value one accepts in exchange for spending a portion of his/her life doing something, often in 1 hour increments. This is why money is often referred to as the fruits of our labor. This is a profound concept that I bet most people haven’t given much thought to. Do you place a value on your time? You should. When you punch the timeclock, you’re agreeing to trade X hours of your life in exchange for money. I value my time in this world & wish to use it as I see fit. We must retain control of the distribution of the fruit of one’s labor in accordance with one’s wishes. When the government takes from the citizenry under duress, this essentially places them under forced servitude (i.e. slavery). Don’t kid yourself, this is exactly what is at stake. The goal of the kleptocracy is for all beneath them to live in debt slavery. BTW if you’re carrying a large credit card balance, you’re already a debt slave and you may not have even realized this until now.

          I hope that was helpful.

          I accept that there is a need for limited government, but its role should be restricted to providing for the national defense, & protecting life, liberty, & the pursuit of happiness of its citizens. Any growth beyond these core responsibilities of government is just a political control/power grab.

          1. “Well stated. This concisely describes the relationship that exists between large investment banks & our government.”

            If that was truly the relationship in what you describe then you wouldn’t have any demand for our currency and no one would be investing capital. But that’s not what’s happening. You do have capital formation.

            “You also hit upon the prime reason that record numbers in the US have taken to acquiring & holding precious metals to preserve the wealth they have from the ever eroding forces of inflation on our currency (BTW another failure of the Federal Reserve).”

            Some nutjobs have been doing this since the gold standard was done away with and their predictions of gloom and doom haven’t come true. Really its a dumb thing to do. Prescious metals like gold have no actual utility or use. Its a foolish thing to own because its actual intrisic value won’t rise although its market value might. Hence the only way you can make an appropriate return on capital is to find a bigger fool than you!

            Prescious metals aren’t a hedge against government collapse or severe inflation either. If the currency became worthless, prescious metals won’t put food on the table or help you buy essentials. Individuals who are buying gold for this purpose would be better off buying canned food, and guns.

          2. Capital formation? Well, OK if you say so… Rising stock pries might make one think so, but trading volumes tell another story
            Conspiracy??? Oh yes…

            The reason to hold PMs isn’t out of an expectation of growth. That would be absurd (silly Keynesian). Holding PMs is more likely done as an attempt to preserve wealth. Sure, if society collapses, PMs will not be practical & would probably attract unwanted attention. But after order comes out of chaos, PMs can then be redeemed in whatever new currency that is issued.

            Consider that 100 years ago, an ounce of gold would buy a fine man’s suit. The same amount of gold holds roughly the same purchasing power today. You cannot make the argument that a fiat Federal Reserve Note will stand the test of time because it hasn’t. It has been inflated with vigor. Of course, that is the point of fiat money. It affords politicians the luxury of never having to make the unpopular choice to cut spending. Instead, to fund never ending deficit spending the currency is continuously inflated, an ongoing encumbrance on all the citizens.

            It’s not that gold is expensive right now, it’s that the fiat dollar is worth much less than it used to be.

            I’ll bet you that anyone who has the foresight to hold PMs also has thought enough about the future to keep a store of canned goods, dried foods, guns, & lead.

          3. “Capital formation? Well, OK if you say so… Rising stock pries might make one think so, but trading volumes tell another story”

            Harvey you really don’t know very much about finance do you?

            Trading volumes tell you nothing about true capital formation. Most capital the moves in the United States isn’t invested in the public equity markets.

            Capital is formed when institutions or individuals invest risk their own equity or borrow to create new assets. The return on this invested capital in excess of the cost of aquiring such capital forms capital.

            “The reason to hold PMs isn’t out of an expectation of growth. That would be absurd (silly Keynesian). Holding PMs is more likely done as an attempt to preserve wealth.”

            But that’s the problem it doesn’t perserve wealth. Its not worth anything as it can’t be consumed, or invested. The only way that prescious metals perseve wealth is if another fool thinks that its worth the same in the future as it was before.

            “Consider that 100 years ago, an ounce of gold would buy a fine man’s suit. The same amount of gold holds roughly the same purchasing power today. You cannot make the argument that a fiat Federal Reserve Note will stand the test of time because it hasn’t. It has been inflated with vigor.”

            You are missing one important point.

            Many of the goods that you can buy today weren’t available 100 years ago. These goods, such as computers, dishwashers, and vaccines give you a much greater quality of life. Hence its irrelevant if you can’t buy as many apples as you could 100 years ago. You can buy Apples today. One dollar certainly buys you a greater quality of life than it did 100 years ago.

            “I’ll bet you that anyone who has the foresight to hold PMs also has thought enough about the future to keep a store of canned goods, dried foods, guns, & lead.”

            Yeah I can just picture it. You are the guy on your block who doesn’t shave or shower but is sitting on a store of guns and ammo. I’ll bet the ATF would love you.

            If the country collapsed into chaos there is no guarantee that you could ever redeem the prescious metals for the new currency. No one would want them as they have no utility.

            Besides, even if you could redeem your presicous metals for currency, its likely that your quality of life would be much lower than it was today.

            Harvey it seems to me that you are a complete wackjob. You are a perfect Deep Capture dupe

          4. I’m good with your disdain for guns & PMs. More for me.

            Best of luck to you in the future.

            BTW, the house just passed the health care bill. Brace for sweeping new taxes to fund our cradle to grave welfare state.

            God bless America!

          5. “I’m good with your disdain for guns & PMs. More for me.”

            No I just have disdain for nutjobs who can’t admit they were wrong and support a website created for the soul purpose of protecting the real criminals. Judd Bagley, Mark Mitchell, and Patrick Byrne defend the real destroyers of capital.

          6. Sticks & stones, princess.

            I won’t call you a nutjob. That would imply you do not know of what ills you speak. I think you know exactly what you are doing, which is trying to reassign blame & obfuscate.

            I’ll call you a revisionist liar. How’s that?

  25. Greenday:

    “Government isn’t perfect but by and large gets it mostly right. I am guessing that if you live in this country you have a roof over your head food to eat and don’t live in fear of your physical safety. You also have a pretty good social safety net so you likely won’t have to compromise any of those things should you financial misfortune befall you. Who do you think is responsible for these things? The U.S. government along with all the agencies that you claim have “failed”.”


    The roof over my head and food on my table was put there by the government?

    And here I’d almost begun to think Greenday might be an honest broker.

    1. “The roof over my head and food on my table was put there by the government?”

      The government supports a banking system that allows you or your landlord to borrow money without which you would not have a roof over your head.

      The government also backs the currency that gets food to the market where you can buy it. The same currency also pays your wages which are used to buy the food.

      So yes indirectly the government does put food on your table and a roof over your head. Look at countries where the government really involved only in theft or where there is no real government at all. The quality of life is considerably less.

      1. “The government supports a banking system”

        That much is true, though we weren’t given much of a choice since Congress turned over control of the currency to a private bank ~100 years ago.

        The rest of your comments are just a bunch of pro-government rhetoric. The other day I asked if you coild please share with us what exactly it is that government does so well. Still on the edge of my seat waiting for you to enlighten me.

        “From each according to his ability, to each according to his need.” This will work out especially well for those who are lay-abouts.

        1. “The rest of your comments are just a bunch of pro-government rhetoric”

          Harvey why is it that everything with you has to be black and white? Either you are spouting “pro-government rhetoric” or the government and the currency is on the verge of being worthless. Isn’t it possible that neither is true?

          You asked what the government does well.

          #1 Provides a social safety net and writes checks.

          You can be sure that if you are entiled to a tax refund it won’t take several months to get there. I’ve never heard of someone who couldn’t get their social security check.

          Secondly if you do lose your job, unemployment insurance is very easy to get. Its unlikely that you or your children will starve in America.

          #2 Puts out fires.

          When the financial crisis loomed governemnt ultimately did the right thing in response to frozen credit markets. Government supported the banks, which in turn resumed lending. Unlike the great depression where banks erased peoples savings most were able to completely recover their deposits at failed banks.

          Its ironic that you claim that “I don’t understand money”, yet your comments show very little knowledge of finance, history or economics.

          For example your statement that the dollar has lost 96% of its value since the establishment of the federal reserve. I assume that what you mean by this is that a dollar today buys roughly half the goods it would have 80 years ago. While that maybe true it ignores some important factors. The quality of life for most Americans has risen substantially. No one worries about death from small pox, having to put their children to work in dangerous mines. In the meantime there has been substantial capital formation that has taken the form of a highway system, the automobile, the computer, and the internet all of which have increased GDP and productivity. The quality of life of the average American has risen SUBSTANTIALLY, from when the federal reserve formed.

          You see, stating that the dollar has lost value over eighty years completely misses the point. Some erosion in the value of money is necessary for capital to form and for GDP to rise. When the dollar RISES in value over time then you have deflation which means that there is no demand for goods and services. Capital isn’t forming, as GDP deflates which sends jobs and the quality of life for most individuals downward.

          What is a problem is hyperinflation where the value of the currency depletes very quickly as no one wants to hold the currency. In this case capital doesn’t form and the population doesn’t receive essential goods and services needed to surivive. This is essentially what’s happening in Zimbabwae under Mugabi and it doesn’t describe what’s happening in America.

          In short Harvey you are very foolish listening to conspiracy websites as opposed to really learning about how capital forms and why. Its clear you don’t have a good understanding of money.

          1. There is the truth, & there are various stories that mean to rationalize a twisted perversion of statist Keynesian policy.

            Methinks you partake a bit much of the kool-aid.

            #1 Takes your money & then gives you some of it back.
            You love to fall back on the unfunded liability ponzi scheme. Yeah sure the government will just write you a check… You do realize that “tax refund” was your money all along, right? The government took a lot of money from you & then out of kindness decided to return a pittance back to you.

            It’s possible that things will just stay as they are now (as you so dearly want to believe will happen). But it’s more likely there’ll be a new world war. Central bankers want to get us back to spending money so they can lend it to us at interest. Regardless the cost in human suffering.
            #2 Sets fire & then calls a committee of executive fire marshalls to decide how to preceed. Eventually they have someone put the fire out.
            Give me a break. The taxpayer was forced to re-capitalize a bunch of failed banks (i.e. cover the losses of degenerate gamblers). What has come of this taxpayer sacrifice? Not much. And how is this better than if they had just failed?

            The government of Latvia collapsed today. Greece still teetering. The world is in flux and you’re all Kevin Bacon about it…
            No. Actually it’s not Kevin.

            There is record unemployment. http://www.shadowstats.com/alternate_data
            There are record numbers of BK filings. Tens of thousands of families are underwater in their mortgages. Thousands of those are delinquent. Who knows how many have decided to no longer pay on an underwater mortgage & instead just live rent & tax free until foreclosure? This is especially troubling since local & state governments are feeling the pinch from this (can you say CA IOU). Lending has not really resumed to any significant extent. Most disconcerting, confidence in the ability of our government to cope with the problems we are faced with is being irreparably damaged by scandal after scandal, looting after looting.

            Critical thinking is something that is sorely absent from the skillsets of most young Americans. I would encourage you to turn off CNBC. Go have a look around a few “conspiracy” websites. Don’t believe everything there either. Instead, exercise your noodle.

            I totally agree that the quality of life of most Americans has improved tremendously over the past century. However, we will have to agree to disagree on what drove this growth. You seem to argue that the prosperity of the USA over this span of time was because of quasi-government kleptocracy. My argument is that, because these institutions are comprised of imperfect men with an insatiable lust for power & wealth, the growth of the country was in spite of them.

  26. Doesn’t look like they started out in 2001 wanting to use repo 105 to reduce leverage…
    That came later in 2007 as they market collapsed…


    “You can see that by May 2008, the bank had managed to shift some $47m of CCC-rated assets through Repo 105. The vast majority of Repo 105 usage, however, was still for A-range assets.

    Without the knowledge of Repo 105, anyone watching the bank would probably have thought Lehman was tring to reduce its leverage by getting rid of its most illiquid (and probably least valuable) assets.

    Unfortunately, the exact opposite would have been true based on this report.”

  27. Repo 105 wasn’t initially used to take illiquid assets off the books….only later in 2007, when the market had gone sour.
    And moreover, if this zerohedge analysis is right, the Fed and SEC were as bad as Lehman mgt and Linklaters and Ernst & Young.

    “Going back to the beginning, this whole debate would have been a moot point had the Fed done at least a little diligence to determine if the Lehman collateral in question was in compliance with the original PDCF terms of accepting only “investment grade” assets; if instead of blindly following the massively corrupt rating agency doctrine, the Fed’s hundreds of overpaid analysts had done at least one hour worth of work; if the Fed had felt even a modest sense of fiduciary oblgiation to US taxpayers, to whom, much more so than Wall Street, it is supposed to be responsible.

    This is not what happened.

    In fact, what did happen, is that when Lehman attempted to use the Freedom CLO as collateral with Citi a few months down the line, it was classified as “bottom of the barrel” and “junk.”

    In early August, Lehman offered Citi the Kingfisher, Freedom, Spruce and Verano CLOs – recently rated tranches of asset-backed securities that were backed by corporate loans and structured by Lehman – as collateral in connection with the pledge agreement. Cornejo was concerned about Citi’s reaction to Lehman proposing these assets as collateral and, according to Mauerstein, Lehman was not surprised when Citi ultimately rejected the CLOs as collateral. Citi personnel characterized the CLOs offered by Lehman in connection with the pledge negotiations as “bottom of the barrel” and “junk.”

    There is far more but this is more than sufficient.”

  28. Greenday, baisc flaw in you argument was that Fuld did not blame market manipulation until the company was already under..not before, when he and his company participating in the actual act AFTER. From the time he said the words “Naked Shorting” in the media and in front of congress he was doomed to get thrown under the bus and lo and behold, now he has been. And please don’t go all goo-goo gaa gaa over what this “Indendpendent” auditors have found.. I can assure you some of what they may have found has not been released for public view. We all know how well our financial people can manipulate findings for their own interests. You probably believe Wall Street earned the 140 billion in bonuses aand compensation in 2009 too huh? Please get real and I am not even a first stringer in this cause..just another victim. But I assure you Greenday “What goes around..eventually comes around” Peace. p.s amazing you came so quicly to prove Deepcapture at fault but glossed over the culpability of our government and regulators, big banks and somewhere in there Hedge Funds, just amazing.

    1. I still haven’t heard that the use of Repo 105 was a crime.

      Has anyone?

      Since when is poor judgement driven by mark-to-market madness a crime?

    2. Sean-

      “Greenday, baisc flaw in you argument was that Fuld did not blame market manipulation until the company was already under..not before, when he and his company participating in the actual act”

      Fuld blamed shortsellers the entie time. It was one of the reasons why Buffett didn’t invest in Lehman Brothers so this assertion is wrong.

      But when he started to blame shortsellers publicly is irrelevant. It seems to me that Fuld blamed shortsellers either in an attempt to limit his own legal liability and/or because he couldn’t look in the mirror as to who was reallyto blame for Lehman’s problems.

      “I can assure you some of what they may have found has not been released for public view.”

      This was a 200 page report issued by an court independant party so I’d say it was pretty comprehensive. The entire report was released for public view. There would have been no reason for the examiner to redact the report nor is there any evidence that it was.

      “We all know how well our financial people can manipulate findings for their own interests.”

      What incentive did the bankruptcy examiner have to manpipulate the findings? He had no other incentive than to do his job which was to report on the bankruptcy to the court.

      These arguments are a completely circular. If evidence is put forth that refutes your argument you can’t rebut by claiming that the evidence was manipulated without any evidence. Why actually bother arguing facts when innuendo will do.

      “p.s amazing you came so quicly to prove Deepcapture at fault but glossed over the culpability of our government and regulators, big banks and somewhere in there Hedge Funds, just amazing.”

      Deep Capture isn’t at fault for the financial crisis or for the bankruptcy. Its clear at this point that the decisions of Lehman executives led to its demise. In trying to paint a picture of conspiracy based upon innuendo and not by evidence Deep Capture is teaching people like yourself who don’t understand finance the wrong lessons.

      1. “Its clear at this point that the decisions of Lehman executives led to its demise. In trying to paint a picture of conspiracy based upon innuendo and not by evidence Deep Capture is teaching people like yourself who don’t understand finance the wrong lessons.”

        Your revisionist slip is showing, princess.

        It’s funny how you seem to have no problem with the concept of ANSS, which is nothing less than fraud.

    1. Both major parties are equally worthless. Regardless whether it be lymphoma or pancreatic, it’s still cancer and will consume the host.

      Albert Einstein once said “The definition of insanity is doing the same thing over and over again and expecting different results”.

      Perhaps it’s time to embrace real change. If you’d like to see actual, real government policy changes, we must move away from the two major parties & take the government back. A vote for Democrat or Republican “change” meets the definition of insanity.

      But, by all means, choose your preferred cancer if you must.

  29. Ah, I see you are using the old “patient has cancer, so I bought life insurance on him and shot him” ploy. Ah yes, very good. Inspector Jacques Closeau would be impressed.

    1. Ummm… actually, that’s not what I was saying at all… That is a very good analogy though.

      The point I was making is simply that both major parties are responsible and complicit in selling out our country. And the two parties have been on sale for at least the last 50 or so years.

      What has been happening in the last few years is that those who now own our government have begun to reap the benefits of their investment. It’s sort of like capitalism, in a sick twisted kind of way.

      1. Harvey

        I was not refering to your political argument, I was referencing the Lehman/Bear Stearns argument that it was their books that made it then ok to attack them. Judd is exactly right that ANY company good or bad, has a right to the capital mkts cradle to grave. Their business model and execution should decide their fate, not the ability of a cartel to sell their market cap without hypothecation or ownership.

        In other words, despite whether the person is good looking or ugly, rape is rape. As to politics, I happen to drift towards your side. The people charged with representing the people have failed miserably on both sides.

  30. Jim –

    Read it carefully. The writer actually undermines Lewis at every turn, calling his story loaded and one-sided and ending with this intriguing additional evidence that Lewis somehow doesn’t “get” it – a point I made in my post “Jim Rogers Tells Greeks To Go Bust”


    Quote from end of the Bloomberg piece:

    “What Lewis fails to note is that the day prior, Lewis himself had filed a column for Bloomberg News from Davos mocking Nouriel Roubini’s warning “that the risk of a crisis happening is rising.” Such forecasts of doom came from “people with no talent for risk-taking gather(ed) to imagine what actual risk takers might do,” Lewis wrote. The headline described them as “Wimps, Ninnies, Pointless Skeptics.”

    Like many people close up to the industry, Lewis gets all the details, but misses the overall narrative, maybe because he’s caught up in the activist mystique that traders like to project.

    It’s a shame. Because “Liar’s Poker” is such a good book.
    I’m afraid this new book and the movie by Stone, probably an upcoming book by McLean, will set the official narrative unless more people work on filling in the picture more accurately and less self-servingly.

    Note also that Bloomberg’s heading on the Valukas report, unlike the rest of the MSM, emphasized Citi and JP Morgan’s help in pushing Lehman over.


    I actually thought Bloomberg was much better than the rest on this


  31. Get the information on any person you want. Money buys all. 
    Character means shit, if you have some
    Do not worry we will bribe that out of you too. We will let you in on the games and you also can be rich.
    Dumb and poor people will never catch us. Mix the turds with the raisins
    They will not taste the difference.  
    We have the best technology money
    Can buy.  Enjoying the book. 

       WASHINGTON (March 15) — A Defense Department official is under investigation for allegedly hiring private contractors to gather intelligence on suspected insurgents in Afghanistan and Pakistan, a U.S. official said Monday.
    The official, who spoke on condition of anonymity to discuss the case, told The Associated Press that Michael D. Furlong directed a defense contract to gather information about the region that could be shared with military units. After military officials suspected that he was using Defense Department money for an off-the-books spy operation, defense officials shut down that part of the contract, the official said.


  32. If I’m not mistaken doesn’t this entire issue of predatory/abusive short selling boil down to how you answer this question?

    Is it legal or “appropriate” to willfully enter into a contract to deliver the securities you are selling on or by T+3 and then refuse to deliver them in an effort to route the investment funds of the party you are defrauding into your own wallet while “hastening the demise” of a corporation that you by definition an admitted perpetrator of securities fraud deem to be overpriced?

    1. If obfuscation were fungible, these folks wouldn’t need to trade at all…

      How is that the public is blinded so simply?

  33. Can anyone tell me how holding a CDS and incessantly calling for more collateral from a sick company is not legalized extortion?

    1. “Europe wants hedgefunds regulated; US and UK don’t:”

      It’s just a handful of wealthy knuckleheads clustered in CT, NY, & DC who are opposed to regulating hedge funds. I’m willing to bet the majority of citizens in the USA are very much in favor of regulating the hedge funds.

      I think this is more succinct:
      “Europe wants hedgefunds regulated, uber-wealthy in US and UK don’t”

      It’s important to make the distinction. Otherwise, you sort of come off like a NY (Post, Times, WSJ, etc) reporter… (just kidding)

      Of course, they’ll probably just relocate the white collar crimescene elsewhere if it comes to that.

  34. Here’s the question I can’t seem to get out of my mind:

    Could the current pressure on the congressionally mandated providers of investor protection at the SEC, FINRA and the DTCC to cover up abusive short selling frauds as clearly seen in the Bear Stearns and Lehman Brothers debacles really be strong enough for them to risk throwing the financial future of this country under the bus during the NEXT attack just to maintain their cover-up of the historical depth of corruption in our clearance and settlement system?

    1. Yes, the powers that be would rather risk vaporization of our economy versus the rebellion and possible revolution that a total accounting would bring to fruition.

      They are whistling between two graveyards, essentially…

  35. Here you will see fails to mark as short sells from several, but very minimal fines for this. Nothing of meaning will ever be done.


    Recognize this person?

    Manuel Peter Asensio (CRD #1148811, Registered Principal,Miami, Florida) was fined
    $20,000 and barred fromassociation with any FINRAmember in any capacity. The
    National Adjudicatory Council (NAC) imposed the sanctions following appeal of an
    Office of Hearing Officers (OHO) decision. The sanctions were based on findings that a
    member firm, acting through Asensio, issued research reports that failed to define the
    meaning of each rating and that failed to disclose the distribution of the firm’s ratings.
    The findings stated that the firm, acting through Asensio,made statements in research
    reports that were unwarranted ormisleading. The findings also stated that Asensio
    failed to fully respond to FINRA requests for information.

    This decision has been appealed to the Securities and Exchange Commission (SEC) and
    the bar is in effect pending consideration of the appeal. (FINRA Case #CAF20030067)

  36. Anon. That piec of info above is very telling indeed. Thanks, I will make sure a very interested party get a hold of this. Good stuff and thanks.(Another case of the SEC and Finra pampering their beloved shortseller while screwing over the company(ies) and shareholders of such)

  37. How many times and years do we keep getting this crap excuse !!!!

    “FINRA found that the firm’s supervisory system did not provide for supervision
    reasonably designed to achieve compliance with applicable securities laws, regulations
    and/or FINRA rules addressing quality ofmarkets topics, in that the firm’s written
    supervisory procedures for its listed equity options desk failed to provide for one or
    more minimum requirements for adequate written supervisory procedures in trade
    reporting, sales transactions, trading halts and OATS.”

    Maybe if you( SEC/FINRA) keep changing the rules to benefit these crooks it would be hard for them to keep up with their captured regulators rules, or lack there of causing supervisory issues !!

  38. Greenday:

    I come from a country where the government IS very corrupt. Yet, the central bank and the banking system managed to stay out of this mess….and do better than the system here on that count. How come?
    Simple. The corrupt investment banks, speculators, and hedge funds were not in the market. Nonetheless, ALL markets world over are affected dramatically and terribly because of the corruption of the big players here. There actually needs to be an international investigation.

    Simplistic analysis about “governments” versus “banks” won’t do.
    We need the particulars. Which banks, which speculators, which governments, where, and when.

    If the federal government – in this case, the SEC, FED, Congress – here had performed its minimal functons of looking after the property of people, we would not be in this mess. But while failing at that (please check crime stats includin white-collar crime), it has its nose in every other business, creating a self-perpetuating elite in DC that has become the tool of conniving financial interests (banks AND speculators).

    Food is put on my table by my work and the work of the producers and the middlemen who get the food there in response to my payment. We are FORCED to pay the government for that transaction, ostensibly because we receive benefits such as security of property and life, use of public amenities, and stability of the medium of exchange.

    The federal government failed massively at two of those three tasks (protecting property and protecting the value of the currency). Failed is a poor word – it actually connived to sabotage and the interests of the public it was meant to serve, while destroying the value of the currency.

    No amount of revisionist history can change that.

  39. Jim, bet your bottom dollar somebody somewhere is getting some sort of kickback. Wait until it unfolds. Mark this post.

  40. sean,
    This is the problem with the USA. Our government and our regulators who are government workers are part of the problem and will not police themselves. It will take another country to bring justice from White Collar Crime involving the USA because they sure as hell will not turn themselves in. This says it all:

    “The Milan probe may also affect cases as far away as the U.S., where securities firms have faced charges for price-fixing and bid-rigging in the sale of derivatives to municipalities, though not for fraud, according to former regulator Christopher “Kit” Taylor. ”

    Last I heard, price fixing and bid rigging were fraudulent behaviors. It just depends on who is committing the fraud as to if it is fraud or not.

  41. Is this Fraudulent Behavior?

    I guess we can sum it up as: “”It depends on what the meaning of the words ‘is’ is.

  42. Greenday..Just a fast one to keep it simple. The implementation of illegally using Naked Short Selling is against the law. It was used against Leh. There were those in place to prevent it and they didn’t. More time and energy is wasted on defending what was done incorrectly than just admitting it was wrong. take from a Salada Tea bag. So do those or us a favor who understand what was taking place. Stop the attempt to distract from the simple fact the law was broken and those who broke it should take a perp walk.

    1. The SEC’s director of investor ‘education’ personally told me naked shorting is perfectly legal…

      Seems we need clarification.

      Apparently only the attendant FTD’s are illegal.

  43. Look who also got BIG BONUSES: Blinded By Money !!

    Mar 18, 8:38 AM EDT

    AP IMPACT: Gov’t bank auditors got big bonuses

    Associated Press Writer

    WASHINGTON (AP) — Banks weren’t the only ones giving big bonuses in the boom years before the worst financial crisis in generations. The government also was handing out millions of dollars to bank regulators, rewarding “superior” work even as an avalanche of risky mortgages helped create the meltdown.

    The payments, detailed in payroll data released to The Associated Press under the Freedom of Information Act, are the latest evidence of the government’s false sense of security during the go-go days of the financial boom. Just as bank executives got bonuses despite taking on dangerous amounts of risk, regulators got taxpayer-funded bonuses despite missing or ignoring signs that the system was on the verge of a meltdown.

    The bonuses were part of a reward program little known outside the government. Some government regulators got tens of thousands of dollars in perks, boosting their salaries by almost 25 percent. Often, though, rewards amounted to just a few hundred dollars for employees who came up with good ideas.

    During the 2003-06 boom, the three agencies that supervise most U.S. banks – the Federal Deposit Insurance Corp., the Office of Thrift Supervision and the Office of the Comptroller of the Currency – gave out at least $19 million in bonuses, records show.

    Nearly all that money was spent recognizing “superior” performance. The largest share, more than $8.4 million, went to financial examiners, those employees and managers who scrutinize internal bank documents and sound the first alarms. Analysts, auditors, economists and criminal investigators also got awards.

    After the meltdown, the government’s internal investigators surveyed the wreckage of nearly 200 failed banks and repeatedly found that those regulators had not done enough:

    -“OTS did not react in a timely and forceful manner to certain repeated indications of problems,” the Treasury Department’s inspector general said of the thrift supervision office following the $2.5 billion collapse of NetBank, the first major bank failure of the economic crisis.

    -“OCC did not issue a formal enforcement action in a timely manner and was not aggressive enough in the supervision of ANB in light of the bank’s rapid growth,” the inspector general said of the currency comptroller after the $2.1 billion failure of ANB Financial National Association

    -“In retrospect, a stronger supervisory response at earlier examinations may have been prudent,” FDIC’s inspector general concluded following the $1.8 billion collapse of New Frontier Bank.

    -“OTS examiners did not identify or sufficiently address the core weaknesses that ultimately caused the thrift to fail until it was too late,” Treasury’s inspector general said regarding IndyMac, which in 2008 became one of the largest bank failures in history. “They believed their supervision was adequate. We disagree.”

    -“OCC’s supervision of Omni National Bank was inadequate,” Treasury investigators concluded following Omni’s $956 million failure.

    Because most bank inspection records are not public and the government blacked out many of the employee names before releasing the bonus data, it’s impossible to determine how many auditors got bonuses despite working on major banks that failed.

    Regulators says it’s unfair to use those missteps, seen with the benefit of hindsight, to suggest any of the bonuses was improper.

    “These are meant to motivate employees, have them work hard,” thrift office spokesman William Ruberry said. “The economy has taken a downturn in recent years. I’m not sure that negates the hard work or good ideas of our employees.”

    At the OCC, spokesman Kevin Mukri noted that the national banks his agencies regulate generally fared better than others during the financial crisis.

    “In making compensation decisions, the OCC is mindful of the need to recruit and retain the very best people, and our merit system is aimed at accomplishing that,” Mukri said. “We also believe it is important to reward those who worked so hard and showed such great professionalism throughout the crisis.”

    David Barr, a spokesman for the FDIC, which handed out two-thirds of the bonuses during the boom, had no comment.

    In government, as on Wall Street, bonuses are part of the culture. Federal employees can get extra pay for innovative ideas, recruiting new talent or performing exceptional work. Candidates being considered for hard-to-fill jobs may be offered student loan reimbursement or cash bonuses to get them in the door and keep them from leaving.

    The bonus data released to the AP does not say specifically why each person received a bonus. For instance, one person in the OCC’s financial examining division got a $41,000 recruitment bonus on top of a $179,000 salary in 2005. In 2006, the last boom year for banks buying risky mortgages, the FDIC gave out more than 2,000 bonuses to financial examiners.

    In 2008, the year the market collapsed, OTS gave 96 financial examiners bonuses of up to $3,000 for exceptional work.

    At the three regulatory agencies, the value of the bonuses stayed roughly constant from before the banking boom, through the good times and into the collapse. While the total pales in comparison with the billions spent on Wall Street perks, the justification was similar.

    “Bonuses were determined based upon the performance and the retention of the people,” said John Thain, the former CEO of Merrill Lynch, the troubled brokerage firm that paid out $3.6 billion in bonuses just before selling itself to Bank of America. “And there is nothing that happened in the world or the economy that would make you say that those were not the right thing to do for the retention and the reward of the people who were performing.”

    To be sure, Washington policymakers eased regulations and encouraged banks to write risky loans. Families bought homes they couldn’t afford. Brokers found them mortgages. Bankers quickly snatched them up, never asking whether they could be repaid. And rating agencies certified it all as safe.

    But regulators were part of the problem, and the bonuses were a symptom, said Ellen Seidman, a research fellow at the New America Foundation think tank and the former head of OTS from 1997 to 2001.

    “Is it probably the case that the standards for evaluating how well people in the regulatory system were doing were not as high as they should have been? Probably,” Seidman said.

    But the bigger question, she said, is why government regulators thought they were doing so well: “Why did the system fool itself?”

    © 2010 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed. Learn more about our Privacy Policy.

  44. Jim..Naked shorting IS LEGAL. It is the illegal use of Naked Shorting that is the problem. Plain and simple 2008 saw the taking down of FINANCIALS and related. That was the strategy and the tactic used via the mechanics and implementation of the ILLEGAL use of Naked short selling. AND it was done for a purpose few grasp. CHANGE. Unfortunately many were complicit as they piled on and the end result was the near collapse of the financial system. Should many go to jail. YUP. Will they? Gald we aren’t holding out breaths.

    1. Anon, Sorry, being a bit of a devil’s advocate to some extent here…

      Back to the matter at hand…

      So it’s a fact that the illegal aspect of naked shorting is the all-too-common concomittant fomenting, collusion, manipulation and a host of other hard-to-prove squishy terms like that, right?

      Seems the naked shorting itself must be outlawed if it seldom can occur independent of illegal ‘adjunct’ practices, no?

  45. Judd,

    Can you implement an ‘alert me when this page has changed’ type of message?

    It would be helpful…


    1. Jim,
      Do you mean you want an alert when the content of a particular post has changed? Or just an alert when a new post has been added?

      In the case of the former, you can create a custom alert at http://www.changedetection.com but I think it’ll ping you even when a new comment is added, and in case that’s what you want, the other drawback is it only does so once or twice a day.

      In the case of the latter, you’ll note that on the right hand sidebar there’s a header reading “Stay up to date” and under it, a box you can use to subscribe via email. This will send you an alert whenever a new post goes up.

  46. Naked short selling is only legal when performed by a truly “bona fide” MM and only while acting in the capacity of a bona fide MM. A bona fide MM will address markets characterized by a surplus of buy orders dwarfing sell orders by selling A LIMITED AMOUNT of nonexistent share look-alikes (“security entitlements”)into those buy orders.

    After selling A LIMITED AMOUNT of “security entitlments” he is to back off on the selling in order to allow the supply and demand levels to find a new equilibrium level. A bona fide MM will cover any preexisting naked short position ON THE VERY FIRST DOWNTICK in share prices after establishing his naked short position. Here’s the catch; in a clearance and settlement system illegally converted to a “collateralization versus payment” (CVP) foundation from the congressionally mandated “delivery versus payment” (DVP) foundation any MM would be nuts to EVER cover a preexisting naked short position on a downtick. Why? Because at the NSCC buying shares costs money and selling even nonexistent shares makes you money because the NSCC and UCC-Article-8 allow the seller of even nonexistent shares to gain access to the buyer’s funds without making delivery. All the NSCC asks its corrupt “participants” to do is to collateralize the monetary amount of its failed delivery obligation.

    Since each and every FTD results in the issuance of READILY SELLABLE share price depressing “seurity entitlements” then the share price ticks down a notch due to the increase in the “supply” of that which must be treated as being readily sellable. As the share prie ticks downwards so too do the collateralization requirements which allows the funds of the investor being defrauded to flow to the party refusing to deliver that which he sold. Welcome to “abusive/predatory naked short selling” DTCC style!

    1. Madoff was an esteemed bona fide MM!

      It’s nice that the SEC is a trusting, not enforcing, regulatory body.

      How special.

      1. I am doubtful the SEC would be so trusting to you or me…

        Unless that is… you have the wherewithall to guarantee a sitting SEC commissioner with a secure cushy post-SEC seven figure salary.

        That leaves no hope for me.

  47. Hey Jim,
    Will Cramer be the 3rd sacrificial lamb after Madoff and Stanford? Wouldn’t it be a hoot if Harry Markopolis had a hand in this one as well. He has stated he turned over more companies….I am sure Cramer would be small fry in his eyes though.

  48. I think I now know why there is no PERP walks. We as a nation are BROKE, BROKE, BROKE. We can’t even afford to take the criminals to trial. The government has long broken into the piggy bank and there is nothing left. This is why the US Asst. Atty told me the Justice Dept has basically been told to settle the cases, and in my case, it was White Collar Crime: Medical Insurance Fraud involving Government Insurance and Third Party Payers for several millions. UNBELIEVABLE !!! This is definitely criminal’s favorable time. If you do get caught, you pay back a fraction of the stolen money but never spend a day behind bars.

    Wachovia and U.S. Settle a Money Laundering Case

    March 17, 2010

    MIAMI (Reuters) — The Wachovia Bank, a unit of Wells Fargo & Company, has agreed to pay $160 million to settle accusations that it laundered Mexican drug money.

    Under the agreement, Wachovia will forfeit $110 million, representing the proceeds of illegal narcotics sales that were laundered through the bank, the United States attorney’s office in the Southern District of Florida said.

    The bank will pay an additional $50 million fine to the Treasury.

    A deferred prosecution agreement with the Justice Department resolved charges that the bank had willfully failed to establish a program to guard against money laundering. It also resolved Wachovia’s admitted failure to identify, detect and report suspicious transactions in third-party payment processor accounts.

    A Wachovia representative was not immediately available for comment.

    The federal prosecutor in Miami began an investigation about three years ago, focusing on the supposed role of a Wachovia unit in processing illegal money transfers for Mexican exchange houses along the border between the United States and Mexico. The investigation predated Wachovia’s takeover by Wells Fargo.

    Before the settlement, Wachovia said it was cooperating and was “committed to maintaining compliant and effective antimoney-laundering policies and practices, and a strong compliance and risk management culture.”

    Exchange houses in Mexico are part of the global remittance business that allows immigrants in the United States to send money back to relatives in Latin America. Federal officials say drug traffickers have used the money transfer business as a way to move cash around.

  49. Legal is a criminal term. You get arrested if you do something ILLEGAL.

    It isn’t ILLEGAL if I don’t honor the terms of a contract. That is breach of contract, which is remedied by suing the other party. Let’s call this civil thing WRONG.

    It is WRONG for a brokerage to fail to deliver entitlements that are backed by air instead of real shares. You can sue. I think it is also ILLEGAL (mail fraud, wire fraud, fraudulent misrepresentation, etc.) if they send a statement that implies you own a real share or if you try and pull a certificate and they lie about why they can’t or if you vote and your votes don’t get voted. That’s RICO shyte.

    The SEC doesn’t determine civil liability or criminal liability. That’s up to the court system.

    Whoever posted that naked shorting, even for market makers, is LEGAL, may be technically right, but the resulting failure to deliver is definitely WRONG.

  50. Go check the Wall Street Journal report.
    Sackett died on March 17, Wednesday.
    Why is the letter on Scribd that’s cited dated March 11?
    Careless mistake?

  51. For more on why Lehman really failed see the following:

    “Lehman failed because it was unable to retain the confidence of its lenders and
    counterparties and because it did not have sufficient liquidity to meet its current
    obligations. Lehman was unable to maintain confidence because a series of business
    decisions had left it with heavy concentrations of illiquid assets with deteriorating
    values such as residential and commercial real estate. Confidence was further eroded
    when it became public that attempts to form strategic partnerships to bolster its stability
    had failed.57 And confidence plummeted on two consecutive quarters with huge
    reported losses, $2.8 billion in second quarter 200858 and $3.9 billion in third quarter
    2008,59 without news of any definitive survival plan”

    Notice how the bankruptcy examiner doesn’t mention Lehman’s share price, undelivered shares, or market manipulation. This despite that Deep Capture’s own managing editor claims that it is a “fact” that these things caused Lehman’s failure.

    Maybe the managing editor knows where his bread is buttered.

    1. You continue to cite sources that are telling…nay…showing that they are either whitewashed at best or right down in the sewers with the rest of the rats at worst. Judd is right, we do not see enough dissenting opinion around here, and it is refreshing to see someone willing to vigorously argue against what deepcapture is proposing, but all your arguments thus far have only served to push my opinion more in favor of the argument that the deepcapture team has proferred.

      I ask you this, since all human beings are destined to die eventually, is it morally acceptable to gun down newborn babies post delivery at your local hospital?

      1. ” but all your arguments thus far have only served to push my opinion more in favor of the argument that the deepcapture team has proferred.”

        That’s unfortunate because the evidence always seems to point to a Deep Capture team that is lying. The evidence seems to point to them being on the side of fraud.

        “I ask you this, since all human beings are destined to die eventually, is it morally acceptable to gun down newborn babies post delivery at your local hospital?”

        A silly analogy. A better analogy is the old Iraq war “babies in incubators” story. Is it morally acceptable to make up a story about hedge funds destroying Lehman Brothers just to promote the “war” on naked short selling?

  52. Barclays gets courts to ban website…wants monopoly of insider trading: –


    “In her opinion, Cote said the value of analyst research derives not just from its quality, but also from its “exclusivity and timeliness.”

    She said Theflyonthewall.com “free-rides” on banks’ research efforts because it make no effort to produce the recommendations or contribute to the underlying analyses.

    The judge also said such “illegal conduct” cannot be excused because rivals might also engage in unlawful behavior.

    “While it may be true that Fly is a news aggregator and is in direct competition with other financial news aggregators, both large and small, each of these news aggregators is in direct competition with the firms when they report the firms’ recommendations in a timely and systematic manner such that the firms are deprived of the opportunity to communicate them first-hand to their clients,” she wrote.

    While noting the 2003 global research analyst settlement, the availability of discount electronic trading platforms, and the financial crisis might have hurt the banks, resulting in reduced staff, Cote said “these other events aside, the misappropriation of their recommendations by Fly and others has also had a profound effect on their business model.”

    She also advanced a public policy argument for her ruling.

    “A balance must be struck between establishing rewards to stimulate socially useful efforts on the one hand, and permitting maximum access to the fruits of those efforts to facilitate still further innovation and progress,” she wrote.

    The case is Barclays Capital et al v Theflyonthewall.com, U.S. District Court, Southern District of New York, No. 06-04908.

  53. Has anyone made the connection yet that you cannot Naked Short a stock (ANY STOCK) with out the assistance of a PRIME BROKER? Which would clearly point out to all that this whole financial crisis was a Scam to pilfer money from the treasury. In essence Paulsen, Bernanke and Geitner set up a cash crab of opportunity for their friends on Wall Street at our exoense.

  54. So Third Point’s Sackett (co-chief with Daniel Loeb) died unexpectedly from a bacterial infection the day the Lehman report came out…

    and the chief of Goldman’s hedge fund exited last month…

    and three senior officers of Third Point quit last summer….

    and, what else do we need to know here and why isn’t anyone interested in finding out?


  55. Once again it is all about those pesky compliance rules again. Not that anyone in that bank would ever allow money to flow in and out of it:
    “charges that the bank had willfully failed to establish a program to guard against money laundering. ”

    Why even have rules in place as a bank because if you do you might get in trouble because the SEC won’t have an excuse to let you off without admitting or denying your action. Pathetic excuse for regulators and nothing has changed since Madoff. Same people, same old games.

    1. I agree. Outrageous.

      However, at present this manipulative activity works to your advantage if you have interest in obtaining the actual physical metal. Even at $1200/oz, one might consider current pricing to be “on sale” due to ongoing systematic orchestrated manipulative efforts to suppress price… IF you believe the markets are manipulated that is…

      To the chagrin of the central bank, it is not possible to counterfeit an element… at least not in small increments (i.e. coin). Beware of the bars though:

  56. Greenday:

    1. Who’s lying? Name one thing on deepcapture that is a “lie”? You interpret the data one way…they interpret it, another – in the opinion of many people, MUCH more plausibly.. Please explain their charts…and those incriminating emails from journalists…

    No? Silence?

    2. If there’s nothing wrong going on, let the DTCC release the information asked for. Let the public into the DTCC. Open up Fort Knox. Let the Fed Reserve be audited..
    Again, silence…
    Why ever not? Not got anything to hide, then out with the data…
    But government would never lie, right? Oh, nooo.
    That incinerator story, now, that was the government in action,the government you think is our savior..

    3. Abusing the market maker exception IS naked shorting..by another name. If it’s no big deal, why is it illegal?

    4. Re Propaganda: Here’s the real propaganda – making CDSs the villain of the piece, instead of the PEOPLE manipulating the CDSs (and everything else). But since it’s the official story, why, then it must be true.

    5. If paid hacks and unreconstructed fraudsters in the media shill for the government and hedge funds that’s their first amendment right…

    But if a CEO feels he’s a target and fights back, then it’s corporate PR, astro-turfing, and issuer retaliation.


    1. I’ve yet to see any lawsuits raised against DC for slander.

      Isn’t that compelling evidence of truthfulness?

  57. Lila is right. Instead of arguing about whether or not naked shorting is a problem, simply require the DTCC to release the data for aggregates — such as total long/short positions on account statements, total shares in street name from the transfer agent, etc (not identifying individual brokers or traders). This needs to be done frequently, and audited independently. When we see the true story, the endless debates can come to a stop.

    1. The DTCC doesn’t get data on your brokerage statement. From their point of view, their customer is the clearing brokerage and foreign depositories and any data they release would compare what the clearing brokerages and depositories own to what they have at the DTC.

      To get the real data, you would have to go to every country that trades the stock and pull the records all the way down the daisy chain until you get to the customer accounts, going to courts in each state to get subpoena power. They know no regulator could ever do that as it crosses jurisdictional boundaries.

      It’s called plausible deniability. “I didn’t know there was a naked short position down the line…”

      On the other hand, if shares were registered directly in the end customers name on the DTC’s computers, then it would be trivial to come up with this info.

  58. Wallstreet’s grand lie of ‘liquidity’:

    The Way We Live Now
    Who Needs Wall Street?

    Marvin E. Newman/Bruce Silverstein Gallery
    Published: March 15, 2010
    Mike Mayo is a veteran of six Wall Street banks. In the wake of the street’s disaster, he found refuge at a boutique brokerage and has lately taken to startling his peers with the question “What part of Goldman Sachs is good for the country?”

    Human Empire

    Data source: Gallup, November 2009.
    Regular people will be tempted to answer, “None of it,” but the question reminds us that, at least in theory, Wall Street serves society (not the other way around). And as opposed to Harrah’s, Trump Casino and their ilk, Wall Street is endorsed and regulated — with marked restraint — so as to let it perform an important task.

    Because some people have savings and others need capital, some unifying force must bring the two together. Royalty once taxed its citizens and chartered corporations. Wall Street privatized this function, aggregating the savings of disparate individuals through the sale of stocks and bonds. Industry thus gained access to capital; what’s more, public markets performed a miracle of equivalence. Quotations on the stock exchange effectively calibrated, down to the penny, how many hours’ worth of wages would afford a share of General Motors.

    Since the street stood at the intersection of capital and savings — or, if you will, of insiders and Main Street — the potential for conflict was rife. No firm better resisted the temptations than Goldman, which, from its founding in 1869 through recent decades, epitomized, with only rare slip-ups, the best of American finance. Serving the client was its lodestar, and its bankers were pillars of society, more conversant in literature than in the vagaries of, say, mortgage securities.

    Wall Street’s emphasis began to change in the ’90s, as financiers devised new securities — the more incomprehensible, or so it seemed, the better. These instruments, in the main, did not involve selling bonds so that a DuPont could build new factories; they were rearrangements — new permutations, new alignments of risk — on flows of cash that already existed. Most famous was the trading that stemmed from complex derivatives (like mortgages) with only a remote connection to the underlying product. For all the trading in mortgage-backed securities, homeownership increased only a trivial amount.

    The benefit to Wall Street was far more direct. The point of these and many other new financial instruments was to charge a hefty fee and to furiously trade them, and no one was in a better position to do that than their Wall Street creators.

    If trading was, for society, a zero-sum game (someone wins, someone loses), it was, for the street, a gold mine. Greater emphasis on trading affected a subtle change in the culture, in particular at Goldman. In 1999, it sold shares to the public, diluting its long-term ethos. Its traders, formerly restrained by bankers, clamored for more of the firm’s capital.

    In 2006, when Lloyd Blankfein, a onetime gold salesman, assumed command, the coup was complete. But it did not become so stingingly clear until this year, when Blankfein was induced to bare his soul before the Financial Crisis Inquiry Commission.

    Asked about mortgage securities that Goldman both sold to clients and bet against, Blankfein, while expressing regret for what he admitted was improper behavior, added: “In our market-making function, we are a principal. We represent the other side of what people want to do.” He went on to say that when Goldman sells a security that subsequently goes up (i.e., on which the other party makes money), “we wish we hadn’t sold it.” So much for putting the customer first.

    For much of Wall Street, capital-raising is now a sideshow. At Goldman, trading and investing for the firm’s account produced 76 percent of revenue last year. Investment banking, which raises capital for productive enterprise, accounted for a mere 11 percent. Other than that, it could have been a hedge fund.

    Brokers recite, endlessly, that trading is vital because, without it, there wouldn’t be a way for shareholders to exit, thus investors would fear to commit capital in the first place. Within limits, this is true. Thus, at modest levels, the willingness of traders to buy and sell from the rest of us gooses confidence.

    But the value of such “liquidity” has been vastly oversold. The notion that ever more trading makes for successively better markets is one of Wall Street’s great myths. People think liquidity will keep markets stable, but the crisis of 2008 says otherwise. In a crisis, liquidity disappears.

    Modern markets are more likely afflicted with too much trading. Think of oil and its dizzying fluctuations. As the volume from speculators and momentum traders dwarfs that of long-term investors, prices gyrate further from fundamental value. Raising capital thus becomes, to paraphrase John Maynard Keynes, the byproduct of a casino.

    The casino charge is most plausibly leveled at credit-default swaps, the bête noire of A.I.G., Greece and others. Such swaps let traders bet on the odds of default (of a corporate or, indeed, a sovereign bond). If swaps traded in Las Vegas — if bets against, say, Goldman’s bonds swamped the casino, causing Goldman’s lenders to refuse it credit — an uproar would ensue. This actually happened to banks in 2008.

    The social utility of credit-default swaps is ostensibly the insurance function. (Fear that a bond will default? Buy a swap that pays out in the event.) But most traders do not own the bond, and they have nothing to “insure.” Like the fellow who takes a policy on his neighbor’s house, they are simply betting on disaster.

    Swaps are used by banks as a hedge against risky loans, but the effect is problematic. The danger of hypertrading is that it affords an illusion of a continuously available exit; investors feel less need to scrutinize their assets. So it is with bankers. If every loan can be traded away, why worry about risk? Thanks to swaps, banks write more suspect loans and, over all, society is more exposed. At least in an actual casino, the damage is contained to gamblers. The street’s undertow is more serious. Following the debacle, the economy lost eight million jobs.

    The question is whether the social balance would improve if Wall Street were less devoted to games of chance. In the 1970s, James Tobin, a future Nobel laureate, proposed a transfer tax to throw “sand in the gears” of currency markets. Tobin feared that too much trading could destabilize currencies (he has often been proved right).

    The idea of a transfer tax, on financial trading generally, has resurfaced. European leaders, like Gordon Brown in England, are in favor. Timothy Geithner, the U.S. Treasury secretary, has resisted the idea. The ideal of a frictionless market is so instinctual that we have lost sight of the peril that comes with speed. Maybe it’s time to slow the markets down.

    Roger Lowenstein, an outside director of the Sequoia Fund, is a contributing writer for the magazine. His book “The End of Wall Street” will be published next month.


  59. Counteracting pseudo economics taught in universities dependent on donations from foundations.


    Things make a lot more sense if you imagine we already live in a kingdom controlled by dynasties that run the media, educational (using tax free foundations), electoral (using lobbiests and campaign contributions), banking and brokerage systems, who allow just enough democracy to act as theater as they order our democratic leaders to pass rules against the will of the people that benefit themselves at our expense.

    I’ve started reading economics papers online from the 1800’s and the economics taught then is completely different than what is taught now. Back then, it was about labor manufacturing value using energy and resources as inputs. Now, it’s all about rewarding the casino economy.

    1. The site is busy right now, it’s worth checking the link later as it explains “saturation”, why every new dollar is just recycling to the banks instead of going to the productive economy, a concept that our lawmakers need to understand.

  60. We found that the security (ies) listed 
    Below is considered non-transferable. 
    It has not had a tranfer agent, to 
    Facilitate the change in ownership necessary for trading, for more than six years. Since this security does not hold any value that we aware of, we are removing it from your account over the next few weeks, pursuant to sec rule sr-dtc-2003-09 and following standard industry practice. 
    Blah blah burp! 

    Should I scratch my head or my ass?
    Magic.  Where did the money go and who paid taxes ?  
    It is like the grandfather clause from many years ago more magic to help. 

    After the litterbox gets so full of shit. 
    When one gets in and out of the box it smells like shit even if they do not have shit on the feet.

    Is someone cleaning out the litterbox?

    Trust me, I am here to protect you. 

    1. http://www.sec.gov/rules/sro/dtc/34-49930.pdf

      I looked up the rule. Here’s one surprise, 22% of DTC’s share certificates were “non transferable”. In other words, they took them out of your account, but left them in there’s.

      I was told there is a loophole that if the trade doesn’t close (worthless shares are still in Wallstreet’s account), then there is no tax owing on the short as it didn’t close.

      And what happens if the company suddenly finds money and becomes transferable again? Do they put the shares back into your account or is it the case that once they’ve taken them, you have no rights?

      Is it voluntary? What happens if you tell your brokerage you want to leave them in there, even though they think they are worthless?

      If you are relieving your brokerage of the costs of custody, shouldn’t you receive some benefit? What difference does it make if they are transferable or not? Why can’t they leave worthless shares in your account?

      Why should the shorts get off the hook without covering even a worthless company?

  61. It’s amazing that a New York Times reporter from 1904 had the “guts” to try and expose wall street miscreants

  62. What W.C. Greene said of Thomas Lawson:

    In your articles you have spoken of the loss that has been entailed upon widows and orphans, of disgrace and suicide and other ills that have eome through what you are pleased to call the workings of the “System,” the “System” of which you have been and are to-day the exponent, the system of misrepresentation and of spreading false statements; in other words, of stealing Heaven’s livery to serve the devil in. Millions of dollars of legitimate investments have been lost to the people who have made them. Why? Because you, in your selfish egotism, have looked to nothing but your personal gain, thinking nothing, caring less for the woe that you might work to thousands, pandering to the worst prejudices, and by means of such words as “Standard Oil,” “Amalgamated,” “Frenzied Finance,” etc., and making statements which investors have not the means or the time to dispute, you have endeavored to destroy values that have been created by the works of a lifetime.

    To-morrow, in Boston, I shall call upon you. I for many years have stood as a worker, as a man who has built up and who has created, and I know that the savings of a lifetime of many honest investors have been swept away by the falsehoods that you have spread abroad through the public press.

    To-morrow, at your office, I shall denounce you for what you are. The Master long ago said: ” By your works ye shall be judged.”

    Personally I shall call upon you for your answer to-morrow.

    W. C. Greene.

  63. What W.C. Greene said about Thomas Lawson:

    In your articles you have spoken of the loss that has been entailed upon widows and orphans, of disgrace and suicide and other ills that have eome through what you are pleased to call the workings of the “System,” the “System” of which you have been and are to-day the exponent, the system of misrepresentation and of spreading false statements; in other words, of stealing Heaven’s livery to serve the devil in. Millions of dollars of legitimate investments have been lost to the people who have made them. Why? Because you, in your selfish egotism, have looked to nothing but your personal gain, thinking nothing, caring less for the woe that you might work to thousands, pandering to the worst prejudices, and by means of such words as “Standard Oil,” “Amalgamated,” “Frenzied Finance,” etc., and making statements which investors have not the means or the time to dispute, you have endeavored to destroy values that have been created by the works of a lifetime.

    To-morrow, in Boston, I shall call upon you. I for many years have stood as a worker, as a man who has built up and who has created, and I know that the savings of a lifetime of many honest investors have been swept away by the falsehoods that you have spread abroad through the public press.

    To-morrow, at your office, I shall denounce you for what you are. The Master long ago said: ” By your works ye shall be judged.”

    Personally I shall call upon you for your answer to-morrow.

    W. C. Greene.

  64. John Carney Clusterstock), Felix Salmon (Reuters) have joined the Milken Institute (founded by Michael Milken) as speakers:


    1. . @MilkenInstitute Global Conference free pass offer for recently unemployed: http://bit.ly/9DDlzG Great networking opportunity LA 4/26-4/28 about 17 hours ago via TweetDeck
    2. Frank Luntz, Founder & President, The Word Doctors added to @MilkenInstitute #GC2010 line up. http://bit.ly/4pgYMT about 18 hours ago via TweetDeck
    3. New speaker added to #GC2010: Felix Salmon of Reuters http://bit.ly/TOIUy about 18 hours ago via TweetDeck
    4. New speaker added to #GC2010: Heidi Moore, contributor to The Big Money, New York Mag, Marketplace http://bit.ly/ay83eu http://bit.ly/bNQOpB about 18 hours ago via TweetDeck
    5. New speaker added to #GC2010: Stacy-Marie Ishmael of the Financial Times: http://bit.ly/9sFBjh about 18 hours ago via TweetDeck
    6. New speaker added to #GC2010: John Carney, Managing Editor of The Business Insider’s Clusterstock . http://bit.ly/or9JV about 18 hours ago via TweetDeck
    7. Don’t miss this panel @MilkenInstitute #GC2010! @carney @s_m_i @moorehn @felixsalmon discussing financial journalism. http://bit.ly/4pgYMT about 18 hours ago via TweetDeck
    8. Kevin Johnson, Mayor of the City of Sacramento joins @milkeninstitute #GC2010. 2:14 PM Mar 19th via TweetDeck
    9. Eugene Kandel, Head of the National Economic Council, Israel Prime Minister’s Office also joining @MilkenInstitute #GC2010. 2:13 PM Mar 19th via TweetDeck
    10. Pierre Beaudoin, President and CEO, Bombardier Inc. joins line up @MilkenInstitute #GC2010. http://bit.ly/4pgYMT 2:10 PM Mar 19th via TweetDeck
    11. @TNYJohnCassidy joins @MilkenInstitute #GC2010 to discuss Do Our Financial Models Still Work? http://bit.ly/4pgYMT 11:09 AM Mar 19th via TweetDeck
    12. @UFCW EVP William McDonough joins @MilkenInstitute #GC2010 for State of the Unions: Labor’s Role in Today’s Economy 11:05 AM Mar 19th via TweetDeck
    13. Lewis Bernstein, EVP of Education, Research & Outreach, Sesame Workshop speaking on Health Diplomacy as a Foreign Policy Tool @ #GC2010. 11:00 AM Mar 19th via TweetDeck
    14. SEC’s Richard Ferlauto, Deputy Dir of Policy, Office of Investor Education and Advocacy coming to @MilkenInstitute #GC2010. 9:41 AM Mar 19th via TweetDeck
    15. John Engler, President & CEO, National Association of Manufacturers joining line up for @MilkenInstitute #GC2010. http://bit.ly/4pgYMT 9:39 AM Mar 19th via TweetDeck
    16. RT @Vistage members that still need to register for Milken Institute Global Conference, DM @loisatvistage to assist w/registration #GC2010 7:16 AM Mar 19th via TweetDeck
    17. California First Lady Maria Shriver added to @MilkenInstitute #GC2010 line up: http://bit.ly/4pgYMT 10:30 AM Mar 18th via TweetDeck
    18. Paid research intern opening @MilkenInstitute . Be a part of the #GC2010 team: http://bit.ly/9q0w7Q 10:09 AM Mar 17th via TweetDeck
    19. Robert Kleine, Michigan State Treasurer added as speaker to @MilkenInstitute #GC2010 lineup: . http://bit.ly/4pgYMT 9:25 AM Mar 16th via TweetDeck

  65. It really is  repulsive. To watch dishonest liars,  thieves, act like leaders and honest people as they perform like actors and actress in a porn movie. 

    The mental game is sick. If greed does this to sane people. Laugh, make fun, call names. Feel like a helpless child who loves and respects his or her parents when the actions are deplorable.
    Call them friends as you get pleasure from cutting others into pieces.  
    As kicking, beating your dog keeps coming back wagging the tail. 

    The money is spent. Toxic paper.
    Is the  moral principle of our  society spent too? Is the team of honest strong enough to expose truth? 


    1. These old articles are very illuminating.


      If the return on investment on a telephone company is 50% and you don’t want the customers to see a 50% dividend, push the dividend rate to 7%.

      How does this work exactly? Is this a stock split? That doesn’t make sense, as a split wouldn’t change the dividend rate as the share price would fall.

      You’d have to raise the share price to lower the dividend rate, which is different than naked shorting.

      Does “watering the stock” have more than one meaning?

    2. Apropos century-old New York Times articles about fraudulently adulterated milk and securities…

      Just the other day I had a chance to look up the source of the “sunlight is the best of disinfectants” quotation. Imagine my surprise when it turned out to be Louis Brandeis, who wrote a series of articles for Harper’s Weekly in 1913 that were published the following year in book-form under the title, “Other People’s Money — and How the Bankers Use It.” Like Walter Baghout’s “Lombard Street” from the 1870s, Brandeis’ book is both dated and highly relevant. (Oh, and _free_ at the University of Louisville law school website.)

      1. Reading back through those articles, show a different time. They thought dividends should be tied to the capital invested, with maximum dividends of 20%.

        If you build a railway for a million dollars, you shouldn’t be able to charge more than required to make a maximum 20% profit.

        What we call “goodwill” on financial statements now, they called “watered stock”. By selling stock at inflated prices, you lowered the effective return and could get away with charging monopoly profits.

        Could you imagine if Microsoft were limited to a 20% return on the capital actually invested on a product like Windows 7 or Office?

        Anyway, I’ve also heard the term, in later years, used to refer to stock printed by short syndicates who would run the shares up, sell into the volume, then run them back down again with IOU’s.

        I’m reading articles from 1929 right now. My, the similarities.

        1. Hey Anon,
          Try 1820’s, 1700’s [England /France economys] and, what eventually DID happen to the ‘new worlds’ gold.
          The bunch behind the fleecing are artists of old they have a longstanding ability to end up on the winning side somehow.
          Look into how the ‘news’ of England losing at Waterloo caused a panic and who ,suprise, ended up ‘winning’ there.
          Circles going around.

    1. I wonder what Mr. corzine was able to do as a Senator and a Governer for wallstreet oh, sorry I mean we the people.

  66. Clearing should be run by the government or a non profit owned by investors.

    I like this article on a state owned bank.

    “Florida political leaders consider state bank: 2% mortgages, 6% credit cards, no state debt costs”


    The banksters are parasites on the productive working class.

  67. Re: Einhorn

    If Einhorn is vulnerable for naked shorting, attacking the SEC might make some sense. He could claim that any investigation is “retaliatory”. I only know that Einhorn is vilified on this site, but I have no way of knowing if he participated in massive naked shorting (as opposed to legal shorting).

  68. Re: DTCC data

    I suggested a few days ago that we need the total longs/shorts showing on the monthly account statements, and the total shares in “street name” Cede & Co. registered with the transfer agent. A response mentioned that the DTCC do not have visibility out to the individual account holder. True enough. But each “participant” broker/dealer at the DTCC has an account, and the DTCC could report the totals of their accounts. Presumably this would accomplish the same purpose, right? The data for any given B/D would reflect the totals of their accounts, right? And this could be verified by audit as well, right?

    1. ANY data can be obtained, IF people are forced to deliver it.

      To say it can’t be obtained is ridiculous.

      There’s always some way to get it, though that may not be apparent to willfully deaf, dumb, and blind SEC/DTCC staffers and ‘management’.

    2. Companies can purchase a DTC position report and it will always show no short position at all. The reason is that is the DTC participant’s actual position. They take up the shares belonging to Cede & Co. and they allocate them among the participants on a daily basis.

      What it doesn’t show is what the participant is supposed to have. Someone like Bear Stearns had dozens of accounts with DTC and their positions could be moved from one account to another. There is no SHO failure as long as the failure in any one account is less than a certain threshold.

      Imagine a participant clears for brokerages representing 50,000 customers and 100 brokerages.

      The DTC wouldn’t know how many shares that clearing house is supposed to own, so from there point of view, there is no failure. The clearing house wouldn’t know how many shares each brokerage is supposed to own.

      You’d have to subpoena the clearing house and each of the hundred brokerages, spread all across the country in different jurisdictions.

      This could all be fixed by forcing the DTC to keep track of ownership of the final beneficial owner instead of their clearing brokerage.

      They’ve spread the information across tens of thousands of entities to frustrate regulators when it would have been trivial to centralize it.

      Remember, when they say trades settle and naked shorting is minimal, they are talking about trades between participants, who are usually clearing brokerages.

    3. The company has full access to the transfer agent and would know how many shares are registered to Cede. In most cases, it is most of the shares outstanding as few people typically hold certs.

  69. Here are two links about what Senator Kaufman thinks about Reforming Wall Street Regulations:

    — Sen. Kaufman: Bring Back Glass-Steagall, Break Up ‘Too Big to Fail’ Banks – Video Interview


    — Sen. Kaufman: Lehman Accounting Just Tip of Wall St. Fraud Iceberg – Video Interview


  70. Seventh Arrest In U.K. Insider-Trading Sting

    Mar 24 2010 | 2:35pm ET

    British authorities arrested a seventh person in connection with the insider-trading case that ensnared a Moore Capital Management trader.

    The Financial Services Authority, which organized the U.K.’s largest insider-trading sting with the country’s Serious Organised Crime Agency, would not identify the individual arrested this morning. It has also not officially identified the six people arrested yesterday, but media reports indicate that they include Julian Rifat, an execution trader at Moore’s London office.

  71. Gamestop Corp Rumor Writer Fired by Business Insider
    By Perry H. Rod, Published: March 25th, 2010 9:26 AM PDT

    Managing editor of Clusterstock.com and former editor-in-chief of Dealbreaker.com John Carney was fired by Business Insider’s Henry Blodget yesterday. There is no official word on the reason for his termination.

    Two weeks prior, Carney had written an article stating that retailer GameStop Corp [NYSE:GME] “might be an acquisition target,” according to “rumors”. The article started off with, “When the rumor began circulating this week,” and included a link directed to an article that was written by his colleague that same day, not earlier in the week. Carney and his writing partner Vince Veneziani persisted with the unsubstantiated rumor, by suggesting that GameStop’s Merger and Acquisition lawyers appeared to be preparing for a GameStop buyout. GameStop stock rose dramatically as a result.

    According to his biography, Carney believes that insider trading should be legal (perhaps he also believes that spreading false rumors should be a-ok). On the subject of naked short selling, where short sellers bet down stock without actually borrowing any stock, he has actually defended the practice, stating “cracking down on naked short selling would damage shareholders by making the markets less efficient and penalizing the best corporate watchdogs around.”

    The firing may not have anything to do with spreading rumors or believing that unethical practices should be legal, but nevertheless, it may be a sign that Business Insider is attempting to move back into the world of journalism and away from dangerous false rumor spreading outfits such as dealReporter.com, theflyonthewall.com and writers like John Carney.

    1. Henry Blodget merely didn’t like the guy’s underwear. Don’t impute pure motives to Hank, please…

  72. http://www.businessweek.com/news/2010-03-25/lehman-examiner-s-report-misleading-lawyers-say-update1-.html

    and my blog post on that:


    Bloomberg reports:

    “Lehman Brothers Holdings Inc. lawyers said the examiner who reviewed the firm’s collapse included misleading statements in his report about Barclays Plc’s purchase of the Lehman brokerage.

    Examiner Anton Valukas’s March 11 report quoted a Lehman lawyer, Weil Gotshal & Manges LLP partner Thomas Roberts, as saying Barclays’s purchase of the brokerage unit was intended to be a “wash,” with neither gains nor losses for the buyer, according to letters filed today in U.S. Bankruptcy Court in New York.

    The law firm wrote that Valukas omitted statements that “the wash” was merely theoretical and there was no provision for a break-even deal in the sale agreement.

    Lehman is seeking to recover $11 billion from Barclays, claiming the bank received a secret discount when it bought the brokerage. Barclays disputes that claim….”

    I’ve thought for a while that the Valukas report was being hyped, and sure enough, Bloomberg, which has been a lot better than the other accounts, has got some evidence to back that up.

    Here’s what I wrote in a comment at Deep Capture, just a few days ago about the Valukas report:

    The writer [the Bloomberg reporter] actually undermines [Michael] Lewis at every turn, calling his story loaded and one-sided and ending with this intriguing additional evidence that Lewis somehow doesn’t “get” it – a point I made in my post “Jim Rogers Tells Greeks To Go Bust” [Lila: Lewis, with Einhorn, have been using the Valukas report as an endorsement of their trader-activist-good-guy thesis]


  73. A London trader walks the CFTC through a silver manipulation in advance
    Submitted by cpowell on Thu, 2010-03-25 23:41. Section: Daily Dispatches

    Additional Statement by Bill Murphy, Chairman
    Gold Anti-Trust Action Committee

    to the U.S. Commodity Futures Trading Commission
    Washington, D.C., March 25, 2010

    On March 23, 2010, GATA Director Adrian Douglas was contacted by a whistleblower by the name of Andrew Maguire. Maguire is a metals trader in London. He has been told first-hand by traders working for JPMorganChase that JPMorganChase manipulates the precious metals markets, and they have bragged to how they make money doing so.

    In November 2009 Maguire contacted the CFTC enforcement division to report this criminal activity. He described in detail the way JPMorgan Chase signals to the market its intention to take down the precious metals. Traders recognize these signals and make money shorting the metals alongside JPM. Maguire explained how there are routine market manipulations at the time of option expiry, non-farm payroll data releases, and COMEX contract rollover, as well as ad-hoc events.

    On February 3 Maguire gave two days’ warning by e-mail to Eliud Ramirez, a senior investigator for the CFTC’s Enforcement Division, that the precious metals would be attacked upon the release of the non-farm payroll data on February 5. On February 5, as market events played out exactly as predicted, further e-mails were sent to Ramirez while the manipulation was in progress.

    It would not be possible to predict such a market move unless the market was manipulated.

    1. And two days later someone attempts to kill them:

      London metals trader Andrew Maguire, who warned an investigator for the U.S. Commodity Futures Trading Commission in advance about a gold and silver market manipulation to be undertaken by traders for JPMorgan Chase in February and whose whistleblowing was publicized by GATA at Thursday’s CFTC hearing on metals futures trading was injured along with his wife the next day when their car was struck by a hit-and-run driver in the London area.

      According to GATA’s contact with Maguire, board member Adrian Douglas, Maguire and his wife were admitted to a hospital overnight and released today and are expected to recover fully.

      Maguire told Douglas by telephone today that his car was struck by a car careening out of a side road. When a pedestrian who witnessed the crash tried to block the other driver’s escape, the other driver accelerated at the pedestrian, causing him to jump out of the way to avoid being hit. The other driver’s car then struck two other cars in escaping. But the other driver was caught by police after a chase in which police helicopters were summoned.

  74. C’mon, guys! We’re getting a little thirsty for some new juice! When can we expect something?

  75. From EconomicPolicyJournal

    Does George Soros Want to Get a Cut Out of the Entire U.S. Housing Mortgage Market?

    George Soros is out with a new commentary on the housing market. Some of his observations are accurate:

    The business model of Fannie Mae and Freddie Mac is fundamentally unsound. These public-private partnerships were supposed to serve the public interest and the interest of shareholders. But this was never properly defined and reconciled.

    Management’s interests were more closely allied with those of shareholders. They had an incentive to lobby Congress — both to expand homeownership and to protect and use their government-sponsored duopoly status.

    The GSEs extended their activities from insuring and securitizing mortgages to building highly leveraged portfolios of securities by taking advantage of their implicit government backstop. They profited from the growth without bearing the risk of collapse: Heads they win, tails you lose.

    The GSEs already had a checkered history, riddled with accounting irregularities. Eventually, they blew up — at a huge loss to taxpayers that may exceed $400 billion

    As I was reading this, though, the questions kept running through my head, “What’s the angle?”, “Why is Soros promoting this understanding?”

    It didn’t take me long to find out. Instead of recommending that the housing mortgage market be returned to the free market, Soros has a scheme that would micro-manage the mortgage market, the Danish model:

    There is a proven mortgage financing system already up and running. The Danish model has been in use, continuously, since the aftermath of the Great Fire of Copenhagen in 1795. It has not prevented housing bubbles, but it has never broken down. And it proved its worth again in 2008.

    In the Danish system, homeowners do not borrow from either a mortgage originator or a GSE. They borrow from the bond market, through a mortgage credit intermediary. Every mortgage is balanced by an equivalent amount of an identical, and openly traded, bond…Mortgage Credit Intermediaries operate the POB system. They help homeowners understand and navigate the process. Most important, MCIs bear the credit risk of the mortgages — they remain “on the hook” in the event of delinquency or default.

    In other words, this one type of mortgage issuance method is one that might emerge in a free market. There is really nothing that makes this superior to the old fashioned bank that raises funds long term and them makes housing loans with the funds. So why is Soros promoting this one specific financing method? The answer doesn’t come until the short bio at the end of Soros’ article, but it is a whopper, and if you know Soros, it is not unexpected. It reads:

    George Soros, philanthropist and financier, pioneered the introduction of the Danish mortgage finance system in Mexico with the support of then-Treasury Secretary Paul O’Neill. He now participates in a joint venture with the Danish financial system that helps countries use this approach.

    He’s in a damn joint venture running the Danish method. Which sounds to me like Soros has turned the Danish method into a way for money to be pumped into his pocket every time someone gets a mortgage using the Danish method. And now he wants that to include the entire U.S. housing mortgage market.

  76. Jim,
    The one thing he can never buy himself is Immortality. There is only so much money can buy you and he will never amass enough to live to deal for indefinitely. He is no spring chicken.

  77. Quoting Peter Canelo, the US investment strategist at Morgan Stanley Dean- Witter in New York. “One must realize that the market may create wealth but it doesn’t create new money. The money is always there, only the pockets change.” he says “For every buyer there’s a seller, for every borrower there’s a lender. What Wall Street giveth, Wall Street taketh away.”


  78. That was a decent little video. Very interesting. Good to see you’re still at this, Judd.

    Also, yes, Once is totally awesome.

  79. An intriguing discussion is worth comment. There’s no doubt that that you ought to publish more about this subject, it might not be a taboo subject but usually people do not talk about these subjects. To the next! All the best!!

  80. “not enough smart people are paying attention”


    What do present day (((Russians))) like, Sater, Mogilevich, Bogatin, etc. have in common with Korah, the Pharaoh’s former treasurer?

    Just bidness, as usual.

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