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'Naked Short Selling'
Investor Village ^ | 16 May 12 | Matt Taibbi

Posted on 05/17/2012 7:00:16 AM PDT by The Working Man

Edited on 05/20/2012 3:00:38 PM PDT by Admin Moderator. [history]

It doesn’t happen often, but sometimes God smiles on us. Last week, he smiled on investigative reporters everywhere, when the lawyers for Goldman, Sachs slipped on one whopper of a legal banana peel, inadvertently delivering some of the bank’s darker secrets into the hands of the public.

The lawyers for Goldman and Bank of America/Merrill Lynch have been involved in a legal battle for some time – primarily with the retail giant Overstock.com, but also with Rolling Stone, the Economist, Bloomberg, and the New York Times. The banks have been fighting us to keep sealed certain documents that surfaced in the discovery process of an ultimately unsuccessful lawsuit filed by Overstock against the banks.

Last week, in response to an Overstock.com motion to unseal certain documents, the banks’ lawyers, apparently accidentally, filed an unredacted version of Overstock’s motion as an exhibit in their declaration of opposition to that motion. In doing so, they inadvertently entered into the public record a sort of greatest-hits selection of the very material they’ve been fighting for years to keep sealed.

***Snip***

“**** the compliance area – procedures, schmecedures,” chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.

We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for “our more powerful enemies,” i.e. would work with Overstock on the company’s lawsuit.


TOPICS: Business/Economy; Conspiracy; Government; Politics
KEYWORDS: boa; goldman; goldmansachs; matttaibbi; nakedshorting; nakedshortselling; shorting
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To: kenavi

You don’t understand how Naked Shorting is different than Shorting. See Post #17.


21 posted on 05/17/2012 7:41:21 AM PDT by Hostage (Be Breitbart!)
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To: The Working Man

this reminds me of the nasd report on nasdaq mm’s from the mid-1990’s. they are pretty blantant about intentionally making ftd’s. wonder if it will get any mainstream financial press coverage.


22 posted on 05/17/2012 7:42:01 AM PDT by WoofDog123
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To: 1rudeboy

Be that as it may, Glodman Sachs and the other large brokerage firms are not your friends. If it takes a commie homo to shed some light on the crony capitalism, backed up with subsidies coming out of your pocket when their trips to the roulette table go poorly, than so be it.

Every single one of the people we elect are essntially DC whores that are required to perform fellatio on these companies at every opportunity. That is what they have been paid to do. So the companies get to keep their profits, pay some hush money and offer up a sacrifice to a regulator every now and then (see “Harry Blodgett”), and get their losses made good by the very people they rip off (us). Pretty sweet system, but not what anyone with a sound mind would call a “free market” or “capitalism”.

You try to open a new brokerage firm or buy one from one of the small firm owners that are leaving the business in droves and let me how you get treated by FINRA and the SEC. Your small firm will get the attack dog treatment from them, while they acts as purse chihuahuas for the real crooks - and I count Goldman in the real crook category.


23 posted on 05/17/2012 7:43:28 AM PDT by L,TOWM (Write in Chuck Norris for POTUS and tell the power brokers to FOAD.)
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To: L,TOWM
Taibbi argues (not sure if he does so here, because I'm not giving that blog any hits) that naked short-selling brought down Lehman and that other firm whose name I can't recall right away.

What really happened is that Lehman brought down Lehman. Grabbing the pitchforks and chasing after naked short-sellers may be a popular pastime, but wouldn't you rather address the problem(s) that brought down Lehman in the first place?

This commie homo has you barking up the wrong tree. Next time, it will be the oil speculators. Next time . . . .

24 posted on 05/17/2012 7:51:53 AM PDT by 1rudeboy
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To: 1rudeboy

ouch

you pwned that exchange


25 posted on 05/17/2012 7:59:37 AM PDT by wardaddy (I am a social conservative. My political party left me(again). They can go to hell in a bucket.)
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To: Hostage
Overstock has been after Wall St. and the Naked Shorting issue for a long time because more shares have been shorted against the company’s stock than exist in the first place. In other words certain bankster gangsters on Wall St. have launched short attacks on Overstock.com.

That is still possible even without naked short selling. Let's say that you own some stock. I borrow it from you and sell it to person B. That is normal short selling. I am so sure that it will go down that I borrow that same share from person B and sell it again. Now there are two short shares sold for only one real share existing. Each time I borrowed a real share of stock instead of a counterfeit one created by the brokerage firms like in naked short selling.

I guess it could be possible to set up regulations so that a share can only be shorted once, but that would set up a situation where a share shorted once would be a slightly less valuable stock than one that still could be shorted, which should be accounted for somehow (maybe a mandatory dividend paid by the shorter to the new owner of the stock.

26 posted on 05/17/2012 8:01:30 AM PDT by KarlInOhio (You only have three billion heartbeats in a lifetime.How many does the government claim as its own?)
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To: Hostage

Well said. And yes, there are laws on te books to prevet this...and yet, the SEC does nothing.

Naked short selling is a big contributor to investors fleeing the market...it is uncontrolled, except by the insiders..the rest, the regulators, financial media, lawmakers and judges..are captured.


27 posted on 05/17/2012 8:08:33 AM PDT by SueRae (The Tower of Sauron falls on 11.06.2012)
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To: Hostage

Well said. And yes, there are laws on te books to prevet this...and yet, the SEC does nothing.

Naked short selling is a big contributor to investors fleeing the market...it is uncontrolled, except by the insiders..the rest, the regulators, financial media, lawmakers and judges..are captured.


28 posted on 05/17/2012 8:09:04 AM PDT by SueRae (The Tower of Sauron falls on 11.06.2012)
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To: The Working Man; 1rudeboy
I used to day trade for a living in the 90s

a sizable war chest picking off whatever I could on a full throttle apparatus

screens everywhere actual mini market maker trades.....i think it was a TNT system and I could buy direct from a maker like GSCO or AAH or MSCO or thru SOUS....my only limit was ISDN feed instead of T3 which did prove deadly on the ELOAN ipo pop and subsequent cliff dive

i shorted as much as I went long but I never naked shorted...never even heard of it

naked options yes but I rarely placed options and only thru my broker not as a market buyer myself

but I just read up on it...sounds like a poor practice but i agree with rude....it did not bring down the houses

poor mgt, a very faulty home mortgage market ..mostly from govt crap and leveraged thru derivatives was the biggest culprit..and then it just snowballed

only reason Lehman went down is they were first

these big houses inhabit a universe of their own...and truly are like independent world economies all their own but like the girls they are they run to us to bail them out when they collapse

i hate it...same for the banks

we shoulda let them run their course...no question

what woulda arisen from that woulda have been far superior to now which really is crony capitalism

29 posted on 05/17/2012 8:16:00 AM PDT by wardaddy (I am a social conservative. My political party left me(again). They can go to hell in a bucket.)
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To: 1rudeboy
He wrote Andrew Breitbart: Death of a Douche. It's actually a pretty good read foul mouthed read. The guy definitely doesn't hide his feelings or biases.
30 posted on 05/17/2012 8:19:39 AM PDT by glorgau
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To: Hostage
Peter just makes up shares out of thin air much like the Federal Reserve creates money out of thin air.

True. The FedResBank has no 'risk' in the money they 'loan'. The amount of 'money' that they loan is not even important to them (they never get it back). It is just numbers on a computer screen and it's only purpose is to produce the 'income' to the FRB of 'interest payments'.

To that end, the FedResBank allows each 'bank' they distribute this printed currency to, to then 'loan' out around 2 and 1/2 TIMES the actual amount of 'money' the bank received.

Why?

Because the 'banks' can pay back more 'interest' to the FRB, this 'profit income' is the only thing that is important and has value to them. That is why they allow their customers (our country's bankers) to lie about the actual 'assets' they have.

This method of fudging the numbers to ensure profit is the actual source of INFLATION.

The bankers of Wall Street are just following company policy.

31 posted on 05/17/2012 8:30:37 AM PDT by UCANSEE2 (Lame and ill-informed post)
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To: 1rudeboy
Ad hominem aside, the document exposed is what it is (And I urge Freepers to save a copy before it disappears from the web).

It indicates that Goldman Sachs is dirty, and it doesn't matter if the guy writing about it is gay or straight, Right or Left.

32 posted on 05/17/2012 8:38:35 AM PDT by PapaBear3625 (If I can’t be persuasive, I at least hope to be fun.)
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To: SAJ
Multiply this transaction by, say, 1000 and you end up with more naked short 'shares' than actually exist in the world. Ridiculous, you say -- can't happen? Sorry, this is the exact state of affairs in AT LEAST 209 listed companies' shares in the US, as of May 1, 2012. And the authorities do nothing whatever about it.

If regulators wanted to actually do something about it, it would be easy. Impose a fine for "fail to deliver" at an amount equal to the highest trade price for the affected stock between the naked short sale and the delivery date -- on top of actually having to deliver the shares (buying on the open market at whatever price necessary). Naked shorts would immediately stop.

33 posted on 05/17/2012 8:44:10 AM PDT by PapaBear3625 (If I can’t be persuasive, I at least hope to be fun.)
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To: CodeToad
Should I discount everything he writes?

No.

34 posted on 05/17/2012 8:57:18 AM PDT by Stentor ("All cults of personality start out as high drama and end up as low comedy.")
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To: 1rudeboy

The “other firm” was Bear Stearns.

And I am well aware of what created the buying opportunity for JP Morgan and what took down Lehman. While naked shorting did not “take those firms down”, it did atificially depress share value in the companies during the run-up to their failures, contributed to negative perceptions due to the declining share price, and make it more difficult for these firms to get the liquidity and financing they needed that PERHAPS could have kept them from going belly-up. The naked shorting also turned what should have been an orderly exit buy long holders into routs that cost other investors, large and small, hundreds of millions while the big boys made profits on the volatility.

While not technically illegal prior to the implementation of Reg SHO, it is just part and parcel to what our system has devolved into — if you are in the club, you don’t have to bother with actually settling a trade or following other inconvemient rules that get smaller firms bounced from the business. If a member of John Q. Public wants to short, have the shares or pay through the nose to borrow them. The big boys are STILL doing this, even under Reg SHO. Unethical and even illegal behavior is OK for these creatures, because the fines they have to pay are miniscule compared to the profits they can make. And nobody ever goes to jail, even for conduct like Goldman structuring a deal that they knew was going to blow up, telling investors it is a good investment and selling it to them, and then shorting the investment while making money on all three legs of the deal.

I am not in the energy business so I don’t know about oil speculators. I do know about securities firms and I will tell you once again - if you love the concept of free markets and captalism, large securities firms are not your friends. Sometimes even a commie homo has to be the one to point out that in too many cases, the biggest enemy of capitalism are capitalists.


35 posted on 05/17/2012 9:06:37 AM PDT by L,TOWM (Write in Chuck Norris for POTUS and tell the power brokers to FOAD.)
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To: 1rudeboy

And I wouldn’t watch Rachel Maddow in any case.

Why wouldn’t you? You read Taibbi.


Nasty... Frankly the major reason I read “everything” is that it tends to block out visual and auditory “clues” that are inherent in television. Television by it’s very nature is a passive activity. Reading allows thought and attempts at comprehension of the written material. And thanks to the net I can do additional research as needed.

Now it’s time to get back out to the fields and do some more fencing as well as my other chores. Being a farmer doesn’t let me waste much daylight.


36 posted on 05/17/2012 9:24:42 AM PDT by The Working Man
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To: KarlInOhio

I don’t agree with you that current regulations aloow more than one share to be shorted against one share.

But it does happen the way you described but regulations do not support it. It is illegal. There has to be underlying stock to support a short sale period.


37 posted on 05/17/2012 11:14:55 AM PDT by Hostage (Be Breitbart!)
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To: SAJ; Hostage
Please give me ONE example of a company where TOTAL short sales, naked or borrowed, exceed total issued shares.

For examples, two of the most shorted stocks currently:
Frontier Communications Corp. (FTR)- 204 million short shares (20.5X ave. daily trading volume in stock) versus total issued 1 billion shares
RR Donnelly (RRD)- 57 million short shares (32X ave. daily volume) versus 182 million issued shares

Legally a broker can sell shares he doesn't hold only in the course of market-making, where he has a reasonable expectation to cover by the settlement date.

Given the penalties and regulatory risk, a reputable broker-dealer would not deliberately engage in short selling.

I don't believe there's any evidence that naked short selling is a big risk, I suspect it's a cat's paw to eliminate short selling entirely, so that corporate executives can better entrench themselves from gimlet-eyed opportunist investors.

Then we'd have to depend more on the "gubbmint" to expose securities fraud.
38 posted on 05/17/2012 11:24:26 AM PDT by kenavi (1% of the 1% were born in the 1%.)
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To: kenavi

Yes sure there are examples. I admit I haven’t paid attention to this subject for many years but I remember Mike Snyder doing a devastating special report (video) on naked shorting where he produced examples of companies that at the end of the day had more shorted shares outstanding than existed.

Give me some time to see if I can dig that report up.

But the real nail in the coffin for defenders/deniers of naked shorting was when Mike interviewed an investor that had bought every share of a small publicly traded company. He owned 100% of the stock and had no agreement with any brokerage to lend the shares, no hypothecation agreement.

And he showed how this company was shorted to 130% or so even though every share was owned by one individual who had never given permission to anyone to borrow his shares for shorting.

Can’t remember the name of the company but will try to find it. It’s been 4 or 5 years that I was in the market.


39 posted on 05/17/2012 11:42:58 AM PDT by Hostage (Be Breitbart!)
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To: kenavi; SAJ; Hostage
I left one word out:

Given the penalties and regulatory risk, a reputable broker-dealer would not deliberately engage in NAKED short selling.
40 posted on 05/17/2012 11:43:13 AM PDT by kenavi (1% of the 1% were born in the 1%.)
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