The $10 Billion REFCO Smoking Gun

http://www.ncans.com ^ | 10/23/05 | Bob O'Brien

[abletruth]

Sunday, October 23, 2005

The $10 Billion REFCO Smoking Gun

The listing for the assets and liabilities of REFCO was just made available, and guess what just happens to be hiding in the liabilities column?

A $10 billion liability, at TODAY's mark to market valuation, called "Securities sold, not yet purchased."

$10,590,379,000 - to be precise.

Securities that have been sold. But they haven't been bought.

Welcome to the wonderful world of naked short selling.

Now, one might say, "hey, wait a minute, but Thompson of the DTCC said it's only a $6 billion per day problem."

Only.

[Jimbaugh]

The suits are going to take this country down.

Don't worry about Al Qaeda worry about the crooks on wall street.

[MeneMeneTekelUpharsin]

This article is right on. A LOT of stocks have been hit by this and the government is doing NOTHING to make these guys cover those shares sold short which never existed to sell short in the first place. It has become legalized robbery and will collapse the markets eventually, then ruin the economy subsequently. Hide and watch, wait and see.

I know of several stocks that are being affected by this very thing. With absolutely NO foundation for the precipitous drop, the stock tanks. Small investors, frightened or on margin, are ruined. Taser (TASR) is probably one and Calpine (CPN) is another. Refco's books prove this is going on -- hello SEC?

[MeneMeneTekelUpharsin]

Keep in mind that Refco was the firm through which Hillary Clinton made her magical $100,000 on a $1,000 investment. In commodities, which she knew nothing about prior to this "investment."

All I needed to know.

[MeneMeneTekelUpharsin]

Uh... You wanna tell us again how you REALLY feel? This time with a little more emotion???

It fellows like that who need to be on the list when things change.

[MeneMeneTekelUpharsin]

There have been several stocks in recent past that have had more short open interest than float. Very illegal and seems nobody cares. It basically allows someone(a crook) to short as much stock as he/she wants to UNTIL HE/SHE IS RIGHT! Long buyers can only buy what they have the cash and margin to buy, but a short that doesn't have to borrow shares can just keep shorting till the longs give up. That gives hedge funds, market makers and big boys( aka Soros types) the edge. Who is going to tell Buffet or Soros they can't do what they want to do? After all, they're good for it, right? Well maybe Refco wasn't good for it. I believe TZOO and Taser were in that boat awhile back. Also the CEO of Overstock.com even complained about it to no avail.

Very well written. Now, when is something going to be done about it?

[MeneMeneTekelUpharsin]

You want to MAKE MONEY? Get a job, you lazy bastard.

May you live to see the day you regret having written that. You can not tell others how to invest their money. You are not the arbiter of all manner of investing. Those of us who invest DO work -- what did you think we were doing, just sitting here reading what YOU write? Your depraved comment floated by in an otherwise steady stream of good information, and like the useless flotsam it is, was removed.

[MeneMeneTekelUpharsin]

Once the public's confidence in the market is compromised, the end will come.

[Fido969]

Geeze. Chill out, whoodja.

It was a joke - but obviously struck a sensitive note in some!

[L,TOWM]

Now, when is something going to be done about it?The day after the SEC and NASD are'nt controlled by the largest 15 brokerage firms n the country.

I have'nt seen anyone really address the "Fail To Deliver" ("FTD") issue or the author'r request for the system to perform its mimimum function - settle the trade.

This is not the first time I have seen mention of artificially created shares essentially being created by the DTCC and firms. The issue for the firms is fairly straightforward - making the most money on trading without putting net capital at risk with REPORTABLE open contractual commitments.

Sometimes, ignorance really is bliss, or at least, a better night's sleep.

[Kenny500c]

Correct me if I am wrong, but isn't naked short selling permitted in some overseas markets?

The major houses and hedge funds can easily use this loophole to do their dirty work, without legal repucussions.

[L,TOWM]

Typically, short selling done naked, even on the US exchanges. But, you still need to pay for the stock on settlement day (typically 3 business days after the trade date).

What a short sale works out as is "borrowing" the shares you do not own from the firm. Some one (the buyer) is expecting shares that they bought to be delivered to their account. IF you have sufficient a/c equity, firms will often let keep a short position open for LONG periods of time after they should have settled. This is a "book entry" settlement between firms. As far as the short seller is concerned, the trade is unsettled, since the short seller has not actually covered their short. This is what the piece is partially referring to - unsettled trades of various flavors, including a "fail" when actual shares do not change hands.

The real problem is when firms play the "float" of the settlement period, this was also alluded to in the original post. I have seen estimates that a significant number GREATER THAN a corporation's outstanding shares are on some one's (Firms, Shareholders, and DTC) books on any given day.

Now, the short selling that firms do overseas is "downtick" short selling. This is prohibited by US Law - you can only shortsell on an price uptick or zero tick. And yes, it is damnably hard to catch an downtick short sale executed on a foreign exchange.