Posted on 10/25/2008 4:43:57 AM PDT by TigerLikesRooster
23 October 2008
A Record Number of Buyers Cannot Take Delivery of the US Treasuries that They 'Own'
He who sells what isn't his'n Must buy it back or go to Prison. Daniel Drew
Naked short selling and float and reserve plays are causing a record 'failures to deliver' in the US Treasuries markets. Some of this may be a 'kiting' scheme in which the sellers are playing an aribtrage against the slight fees and penalties versus returns on price distortions and extremes in volatility.
Or it might be a case of selling and using the same thing so many times as collateral that you don't really know what is your actual condition, solvent or insolvent. We can think of several (roughly nine) derivative and instrument laden banks that are utterly insolvent if forced to deliver their net obligations.
The Fed cannot even regulate its own products among its own dealer circles. What could possibly possess anyone to believe that they can do this with any other product in a larger, less exclusive market?
There are system breakdowns that have caused signficant spikes in failures, such as the widespread technical failures following the distruptions caused by 911.
But we are not aware of any massive computer system failures and shutdowns at this time. This may be a case of when the going gets tough, the frat boys bend the rules until they break, and then line up for a slap on the wrist from dad's business associates.
Is this because of the failures of Lehman and Bear Stearns and AIG? Hard to believe but we have an open mind. Transparency builds confidence more effectively than rhetoric and empty promises.
Who are the responsible parties? Let's have a list of the prime offenders of this market. We might *not* be surprised at who is failing to deliver what they sell. It might be an indication that they are in trouble. Oops, perhaps that is why we can't have it.
We suspect the Fed is turning a 'blind eye' to this activity. But more transparency would be helpful to alleviate that concern.
And do not be surprised when other things that you think that you are buying or think you own fail to show up.
There are some who see an approaching 'fail to deliver' spike at the COMEX and they may be right. There were some who believed that LTCM was short 400 tons of gold at the time of its failure, and that several central banks stepped in to depress price and increase supply to alleviate the potential shock on counterparties.
Replay in progress? It could get interesting if it is.
Ping!
Been alot of grumblings lately. Off in the distance but coming closer.
Rumors of a Comex having a default on delivery for silver coming to a theatre near you, in December.
If that happened, $100/oz silver would be cheap by comparison.
Naked short selling is like betting with a bookie with a promise to pay. If you lose the bet, you simply “fail to deliver”, if you win, you get the money. The problem is, Vinny the bone breaker(the SEC) isn’t breaking legs and should be.
Supposedly, alot of folks who think they own stocks - don’t.
They own FTD’s.
And if the magnitude of the problem ever really comes out, it would destroy the exchanges.
Another way I have heard that opening quote is
“He who is short in markets risen, must pay his debts or go to prison.”
There must be a catchy corollary to cover mortgages in falling markets.... Where are the wordsmiths?
Nice site. Thanks for the link.
I don’t get it, give me some schooling - how does ‘naked’ short selling work?
You are selling something you don’t have? How do you make money? And this differs from fraud, how?
I see you are still folding away. My folders are still running, but with very little of my attention.
1) In regular short selling, you borrow stock which you then sell. If it goes down, you buy it back more cheaply and give it back to where you borrowed the shares from, and you have made money. If it goes up, you lose money.Why doesn't the SEC enforce the rules better? Enforcing rules on the politically powerful may result in getting hassled from their pet congress-critters.2) Naked short selling is when you sell without borrowing the shares.
3) Yes it is supposed to be illegal except in certain specific cases (but not enforced on the big boys)
4) Where it gets really interesting is a naked short seller may potentially sell more shares than actually exist
I have read two books that discuss the issue. Some key names are mentioned openly. Wall Street criminals were actively engaged in more monkey business. Left free to engage in fraud and make billions raping the public. WTF is going on, here ___________ ? !
2) Naked short selling is when you sell without borrowing the shares.
Does this mean you could sell shares that you do not own, without knowledge of person who actually owns said shares.
If so does that not put onus on unknowing shareholder to produce said shares??
I'm saying that you could sell shares that do not exist.
Think of the stock market as one huge eBay. I offer shares for sale. I don't tell buyers that I don't actually HAVE the shares on my shelf (thinking that I can acquire it more cheaply in a little while, but before you complain about not getting delivery). You buy the shares I'm selling. I get your money, and then I'm supposed to ship you your merchandise.
I have (technically) 3 days to deliver but some big sellers might take as much as 21 days to deliver without getting slammed. Sometimes, the shares don't get delivered at all.
You start to get the picture?
I sell shares of something I don't own. I have 3 days to deliver them. The price of the stock goes down, I buy those shares back on the market and give them to you as promised. In this instance, I've made the difference between what I sold them at, and what I bought them at. What is happening however is that, I sell shares I don't own at say $10 a share to you. 3 days later, the share is up to $15. Well, that means, I'd have to buy them at $15 so instead, I'll just not give them to you and give you your $10 back. I "failed to deliver". Oops, my bad, I bet wrong. How about this... I sell YOUR house for $100,000. You aren't even aware that I've sold it. 3 days later, the buyer comes to me and wants the deed. I offer you $80,000 for it, but you want $120,000 so I go to the buyer, say "sorry, I failed to deliver, here's your money back". In the real world, the buyer SUES me. In the freewheeling houses on Greed street, everyone shrugs.
I get picture, anyone else sold something they did not own, then fail to deliver or refund purchase price would see inside of jail cell.
I will stop before I get banned!!!!!
If Obama's elected, this is going to get much worse.
I’m trying to imagine “worse”. We don’t have an R in office to stare at dreamily while the country goes down the toilet?
Worse is using problems in the financial system to take them over. Forget your pension and 401K - Obama’s going to “spread the wealth” - and the same for Social Security. Those who didn’t put in a dime will get more - those who played by the rules will get less. It’s how “spreading the wealth” works.
If you need to get bullion, get it directly from the mining company.
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