Posted on 08/25/2005 1:35:04 PM PDT by abletruth
Yes.
Please break it down in bite sized pieces for us simple folks. Thanks
The clearing firms I used to work for would get bought in if their fail-to-delivers were too old. I don't know what would have changed in the last 6 years where this is suddenly such a huge problem.
The only people who should be able to legally go naked short and fail-to-deliver are specialists.
First, you have to understand what a selling short is:
You (individual trader) borrow EXISTING stock from someone else and sell it for price A. An entry is made in your account. You later buy the stock back at price B to cover your "shortage" entry in your account (you buy to give back the shares you borrowed). If the price went down (price A greater than price B) you made money, the difference A-B. if the price went up ($A < $B), you lost money. So, you sell short a stock that you think will go down.
This is a very simplified example. Notice the word EXISTING. Now, for a very good description of what goes wrong with the process, see the following link:
http://www.ncans.net/intro%20to%20naked%20short%20selling.htm
The deeper you dig into this, the worse it gets... This makes Enron, Worldcom, S&L debacle, etc. look like a Sunday picnic.
I don't think this is in the same league as Enron or Worldcom. If the SEC cracked down and all these FTDs had to be covered, these stocks would all rally and these short sellers would lose big money. Since there are more long shares than short shares in existence, net-net there would be more money made than lost.
Gotcha, thanks.
So what happens to those investors when the hedge funds have to cover?
I sell you a new pickup that I don't own and take your money and wife to Brazil.
LOL! Until you actually deliver the shares, you don't get the money from the sale.
In order to 'rally', you need buyers with real money. If all the FTD's were forced to cover or return, the money to buy would have to come from somewhere?
If they don't have the cash to cover, then they are going to sell somthing...and if that is a security you now have downward pressure on the markets. And of course there is the possiblity that they would just liquidate and run...
Needless to say, investor confidence would plummet, adding further downside pressure..
Obviously the SEC needs to do somthing...
Remember the proceeds of the naked sales that are sitting in limbo?
And of course there is the possiblity that they would just liquidate and run...
Yes, if they liquidate their shorts, they'd be buying. Prices would rise.
Needless to say, investor confidence would plummet, adding further downside pressure..
You lost me again. Why would rising prices cause investor confidence to plummet?
"So what happens to those investors when the hedge funds have to cover?"
They don't have to. No one is forcing them to. Some stocks have been on the fail-to-deliver list every day since it was started last January. They are supposed to be forced to "buy-in", but they don't; and the SEC is doing absolutely nothing about it (funny, they are called SROs; self regulating organizations). And besides that, many hedge funds are moving off-shore so that U.S. laws cannot touch them. Do they know the party will eventually end?
Now, to make matters worse, there is another class of settlement between brokers called "Ex-clearing" that doesn't even go through the DTCC or show up on the SHO list. The fraud here is estimated to be 4-5 times as bad as the SHO list. This is where the picture gets ugly huge. This may be the house-of-cards that the SEC wants to ignore. But the crooks just continue to say it is not happening when there is proof that it is. But they won't show the "ex-clearing" fail-to-deliver data because they know how bad it is. Where do you think all those $500K+ bonuses are coming from this year? (avg. Goldman bonus)
How many pension funds and 401Ks, etc. would be much larger now if these scumbags weren't selling down the value of their holdings with fake shares?
Where is that scummy NYT, or the Washington Post, or Forbes, Time, Newsweek? Or Drudge, even? Investigative reporter is something kids read about in history books now.
Well, if they want to realize a profit they'll have to buy.
How many pension funds and 401Ks, etc. would be much larger now if these scumbags weren't selling down the value of their holdings with fake shares?
That depends. Are there any S&P 500 stocks on the SHO list? How about Google?
Not true. If the stock falls to zero, they win. Or, if it falls enough, no one wants it and legitimate owners sell it to them real cheap, so they cover by buying the mass exodus that they have, in fact, caused (nullifying their buying pressure while covering). Think someone gets the interest on that bogus bookkeeping entry?
That depends. Are there any S&P 500 stocks on the SHO list? How about Google?
Ah, since when do 401Ks only have SP500 stocks? And yes, sometimes they are on it, and sometimes ETFs. The Russell 2000 was on it not long ago. AND, the SHO list is only the tip of the iceberg. Ex-clearing failure-to-deliver lists never see the light of day.
One other thing, about your tag, Alan Greenspan was not on the grassy knoll, but he was a consultant for Keating's Lincoln Savings & Loan, and he denounced any regulatory attempts to stem the theft. Might want to look into that. Looks a little embarassing for you in light of this discussion.
You have any examples where this occurred?
Think someone gets the interest on that bogus bookkeeping entry?
You tell me. How does someone get interest on undelivered stock?
Ah, since when do 401Ks only have SP500 stocks?
Since when did I say they did? So what's your theory? How much higher would 401Ks be if these FTDs were closed?
One other thing, about your tag, Alan Greenspan was not on the grassy knoll, but he was a consultant for Keating's Lincoln Savings & Loan, and he denounced any regulatory attempts to stem the theft.
Please explain further about the theft.
Looks a little embarassing for you in light of this discussion.
Why would Greenspan's past or future employment cause me any embarrassment?
Good for him. I hope he wins.
that this looks like a ripe play on options on the long side by both writing and buying a bracket out of the market.
Huh? Again in English.
One way to protect yourself from this type of funny business is to only trade stocks that are too big for this type of manipulation. Don't trade OTC stocks that have such small market caps.
now that I understand. Thanks!
TLR
The story has started to pick up media attention:
http://www.time.com/time/insidebiz/article/0,9171,1126706-1,00.html
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