Posted on 03/20/2009 4:38:39 AM PDT by StatenIsland
This is the first anniversary of the destruction of Bear Stearns.
For a while there, just after it happened, everybody was talking about the role of short selling, both legal and illegal, in Bear’s rather violent passing.
Since then, the big question has gone from “who the hell set this fire?” to “how did this place devolve into such a firetrap, anyway?” and “how the hell do we get out of this burning building?”
Finding answers to all three questions is vitally important. Yet, I’m a little bothered by the fact that these days, so little attention is being focused on the first.
And so, exactly one year after criminal arsonists set a match to the over-leveraged heap of oily rags that was Bear Stearns, I offer up this video examination of that event, and those that would follow.
I hear you: "Oh, no, not this sh*t again." Yes. Again.
Bear Stearns, with billions in liquid capital, was MURDERED by hedge funds who short-sold TENS OF MILLIONS of "phantom" shares of stock, causing the price to plunge.
Consider this, and those of you who play the market will understand it better than others: On March 11, 2008, somebody bought Bear Stearns $1.7 million worth of PUTS with only 7 DAYS left on the contract - THIRTY-FIVE DOLLARS OUT OF THE MONEY! This is the equivelant of buying $1.7M worth of lottery tickets. On that day, shares of BS were selling for about $65 and the strike price for the puts was $30. Insane, right?
By the time the options expired a week later, the price of BS was down in the $20 range, and the "insane" $1.7M purchase of puts was worth hundreds of million.
When the hedge funds shockingly got away with this crime, they knew they had a partner in the form of the SEC, so shortly thereafter they did it again to Lehman.
Where is the SEC on this? The answer will shock and sicken you. Our economy, and our country, is being raped and murdered before our very eyes, and the government, OUR government, refuses to stop it.
Watch the video, please. Get involved.
bookmark.
For non-market players, let me give you a scenario you might better understand.
You’re at the race track, and you’re watching a two-horse race. It is near the end of the race, and the horse in the lead is only seven short strides from the finish line. This horse is called Bear. The other horse is thirty-five lengths behind. This horse is called Puts. Take a snapshot of that in your mind; Bear is leading Puts by 35 lengths, with only seven strides to go to the finish line.
At that precise moment, some unknown gambler says “Y’know what? I’d like to place a bet on Puts - even though he’s 35 lengths behind Bear with seven strides to go. In fact, I feel so strongly about Puts, that I’m willing to bet 1.7 million dollars on him.
Crazy, right? But a funny thing happens. Right after that bet is made, Bear stumbles, then falls, still yards from the finish line. He cannot get up. Nice as you please, Puts cruises to victory, and the 1.7M bet turns into 200M profit.
This video is about what happened to Bear.
Bump for later reading.
BUMP
It’s the people that sell the puts that drive the market down
They really need to investigate that and prosecute the market manipulators. I don’t understand why Bush didn’t start it. And I fear that Obama won’t because he is beholden to the manipulators. Maybe Bush was too.
Here is some nice reading on naked shorting.
In more simple terms, Hedge Funds are selling shares of stck that don’t even exist. The increase in supply on the sales side drives the price down. Many of the shares sold short are never delivered.
There are share of stack trading on the market for comapnies who have no shares outstanding. Every share of stock is accounted for, yet there is still trading.
The SEC does nothing.
Long Term Capital - the 1st to need to be bailed to save the world, during the Klinton adminsistration, was started by Nobel prize winning economists. Maybe they are not as smart as they think and neither is our Global Warming Nobel prize winner.
Victim of Naked Shorts - NYPost, March 20, 2009 As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year's peak of 567,518 failed trades on July 30. The SEC has linked such so-called fails-to-deliver to naked short-selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn't settle within three days. "We had another word for this in Brooklyn," said Harvey Pitt, a former SEC chairman. "The word was 'fraud.' " While the commission's Enforcement Complaint Center received about 5,000 complaints about naked short-selling from January 2007 to June 2008, none led to enforcement actions, according to a report filed yesterday by David Kotz, the agency's inspector general. The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.
More of the same here:
Where Pricing Anomalies Abound - FR, (Barrons) March 7, 2009
http://www.freerepublic.com/focus/f-news/2202288/posts?page=7#7
Says Tony Dwyer, a strategist at FTN Equity Capital Markets: "You have turned the buyer of stressed corporate debt from a buyer incentivized to make the company better and worth more, to a buyer with the goal of default. If the total cost of buying a bond and insuring it to par is less than par, it creates an arbitrage that ultimately destroys capital." Theoretically, an unlimited amount of credit-default swaps can be written and bought on any issuer, and there are incentives for buyers to make companies look sickly. If an investor buys a troubled issuer's deeply discounted corporate debt that has little chance of trading again at face value, and then buys CDS as protection, the investor could essentially want the issuer to default so the swaps pay off to the max.
As the SEC steps up its enforcement in the wake of embarrassing missteps involving convicted Ponzi-schemer Bernard Madoff, the agency has tightened rules surrounding audits of RIAs - commonly known as money managers - under its purview. In order to improve its audits and investigations, the SEC now plans to independently verify the information given to it by RIAs with information from independent third parties, including auditors, accountants and even investors. That has led some industry watchers to bet that SEC Chairman Mary Schapiro's next step - after closing gaps in the way the agency regulates RIAs - will be broadening the definition of what qualifies as an RIA to include hedge funds. ..... Hedge funds that register with the SEC are already treated as RIAs. Last year, 1,991 hedge funds were registered as investment advisers with the SEC, according to the Government Accountability Office. But such registration is largely voluntary and can be pulled at any time. Meanwhile, the SEC has no idea how many hedge funds even exist, the GAO report said. Recent moves by the Securities and Exchange Commission to tighten its grip on so-called registered investment advisers (RIAs) is being viewed as a possible precursor to mandatory registration of hedge funds, industry watchers said.
SEC didn't really have the authority to regulate hedge funds, FInRA (formerly, NASD) was more directly involved and had oversight tools and responsibilities. FInRA "missed" massive Ponzi scheme of Madoff, who, with his brother Peter and his son Mark held various positions and were functionaries of FInRA. The head of FInRA until recently, when she was appointed by Obama to chair SEC, was the above-mentioned Mary L. Schapiro.
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