Posted on 12/08/2005 10:33:26 PM PST by Hostage
StockGate: Is The Naked Short Sales Bubble Now Big Enough To Threaten Wall Street? October 27, 2005 (FinancialWire) According to Financial Times, the $10.590,379,000 “securities sold, not yet purchased” line item in the Refco (NYSE: RFX) bankruptcy balance sheet is not only naked short selling, it is under intense investigation by authorities. The article is at
http://www.efinancialnews.com/index.cfm?page=home&pdigest=18500000000074245& uid=5405-7710-922621-810209
FT says that the firm’s IPO underwriters Goldman Sachs (NYSE: GS) and Credit Suisse First Boston (NYSE: CSR) both have investigators looking into the illegal but allegedly widely practiced manipulative practice among essentially unregulated hedge funds and other financial institutions that now appears to be a naked short sales bubble that could imperil the U.S. and worldwide financial markets. Overstock.com (NASDAQ: OSTK), for example, is suing one of the biggest, Rocker Partners, for conspiracy. Overstock’s CEO Patrick Byrne appeared late yesterday on News Corp.’s (NYSE: NWS) Fox with Neil Cavuto to state that there are at least twelve Refco’s “buried in the system,” and Cavuto said some say it could be as many as 60 institutions ready to implode. He said a “systemic” problem could cost the Depository Trust and Clearing Corp. as much as $100 billion to clean up.
(Excerpt) Read more at buyins.net ...
Naked shorting has driven alot of companies into the ground causing many investors to be ruined.
Read the article and you may realize this scandal dwarfs that of Enron.
Also read how the SEC appears impotent in dealing with enforcement.
And note as well the involvement of George Soros' Quantum Hedge Fund.
If Republicans had a spine they would hold hearings on 'Naked Shorting' and likely snag some high profile individuals with an investigation.
While it is considered illegal in the US, as an example, the german stock market easily allows it, and you can massively naked short american stocks from it.
The germans, and other euro countries day in and day out do a lot of damage against the US economy by exerting a ton of fake shorting pressure on our securities to keep them down. And you bet your ass guys like Soros are involved in this as well.
Considering we are entering the 4th year of the current bull market in 2006, many of our stocks haved stayed undervalued due to all this artificial shorting pressure.
I think impotent is the wrong word. Complicit is more like it.
Same with the NASD. They could improve things if they wanted to. But they dont want to because their members are profiting handsomely from the thievery.
Some clarification here.
Shorting in the stock market is the act of selling a share of a company with the intent of follow up "buy" (usualy in a short period of time) at a lower price. The net effect within a brokerage house, that the broker will "borrow" a share from one customer, sell it, give the cash to the person who did the shorting and when the follow on buy order gets filled, the broker then replaces the "borrowed" share. The share owner receives the same value (1 share for 1 share) and perhaps some minor interest payment, the seller receives the proceeds of the sell but then has to buy back the stock at a HOPEFULLY lower price point. In essence, the person doing the short, pockets the price difference on a down swing (minus any brokerage commissions of course). This is perfectly legal.
A NAKED short is doing all of this WITHOUT A COVERING STOCK! This is esentually electronic counterfeiting stock certificates which SHOULD be illegal and get you jail time but the SEC has not enforced or to my knowledge, even had a single public trial of anyone for naked shorting.
One form of a naked short with a brokerage house is essentually conducting the sell but recording the "borrow" of the stock as a dollar transaction on their books. This creates a downward preasure on the stock that is not controled by supply and demand. Without the covering stock, the brokerage firm could in theory, sell as many shares as they wanted and keep piling up thier accounting books with ledger entries that they "owe" stocks (need to buy the shares back). But if their is no policing to drive the brokers to re-purchase those shares within a short time period, then there is a artificial devaluation of the stock. Something that hurts all the other investors and the company itself.
The analysts like Greenberg are neck deep in this. They and their hedgefund buttbuddies work together on these naked shorting scams back and forth.
An example, Cramer pumps Sears holdings to get people to buy into it, then down the road, Greenberg trashes it once massive short positions are put on it. The hedgefunds reward them nicely.
No shock to see Jim Cramer's company, thestreet.com and its analysts, one of the companies being sued in the overstock.com case.
Cramer has back channels to many hedge fund buddies, and just like Greenberg, is involved in this as well. Cramer used to run hedgefunds with his wife who was a big wallstreet trader. His wife is the true brains behind the organization and he makes sure to keep her out of the limelight.
His mad money show and action alerts thing is just the front to make his dealings look more legit.
Could it have been shortened to:
Dear (401k, IRA and General Individual Investor),
You're screwed, we win; but then, we always do.
Thanks
George S. and the Boys
Uh, McCain's hearings on steroids in baseball was far more important than this.
I really don't know what to make of this. But I've seen instances where the daily trading volume of a stock will be a large percentage of, or in some cases exceed the float.
I trade with Scottrade and they require that they have a "cover" if you want to short a stock. Also, they give no short interest rebate if you short, which reduces the incentive to short.
The only reason that I give these "naked shorting" arguments any consideration is that unless you specifically "take delivery" of shares you purchase they are held in a "street name", ie., by the brokerage and can be lent to short sellers without your explicit knowledge. Since it is not uncommon for me to make up to 4 or 5 trades a day, taking delivery of shares is not reasonable, in addition to the fact that if I did request a delivery it would probably place considerable restrictions on my margin account(in that I would have to wait for the trade to clear, typically three days, before the funds of a stock sale could be used to purchase another equity--not realistic for a daytrader). This whole thing is a real murky area, and I damn sure don't think our "elected representatives" are either honest enough or smart enough to protect us.
The well connected people doing the short selling have bought off all the politians. There will be no hearings, no grand juries, no indictments and no prosecutions.
I wonder if this is why the Fed has announced going stealth with M3 statistics next year. Maybe they have to clean up this mess.
I see more to it than that. We can agree that corporate law is good, maybe even that derivative trades like shorts are good --but shorts create shares. Whenever money is loaned and the bond is used as collateral for another loan, then we say money is created (not counterfeited) --even though some people will object that the money was created out of 'thin air'. This same argument is used to justify a naked short sale, because when a borrowed stock is sold, it makes it so twice as many people now have those shares registered in their portfolios. The additional shares have been well, created.
I got no problem with the SEC saying it's illegal, but then they have to enforce their regs. I'd have no problem with the SEC voiding the reg either. IMHO what's important is consistency and transparency.
I am somewhat confused by your comments. It would be sensible if you were addressing 'shorting'. But naked shorting seems to me to be quite different in that the shares are not 'borrowed' as they are when a short position is taken.
I am not trying to be argumentative but for sure one of us is confused or mistaken. Specifically the point of 'counterfeiting' vs. 'creating' is one of a legal distinction.
A counterfeiter 'creates' with the intent to defraud. Does not a naked shorter do the same?
All authorized, registered and issued shares of publicly traded companies are registered with serial numbers in the same manner as currency. Naked shorted shares are neither authorized, registered nor issued. Naked short positions have no traceability to any share with a proper serial number. They are therefore seemingly counterfeit as the Financial Times article describes them.
There is only one instance that I am aware of in which naked shorting is allowed under the law and that is when a specialist or market maker finds it necessary to close out a losing long position which they have taken with their own inventory. This is done presumably to ensure an orderly market. It is a priviledge accorded them. They are licensed and regulated by the SEC and markets so their special position of trust is backed by law to allow their capacity to naked short.
This is a good analogy for explaining what I'm thinking; but first, are you familiar with how the money supply expands (money is created) through private borrowing (when interest rates fall)?
This article is idiocy! To sell a stock short it must be borrowed first. Margins must be in place or a buy in will occur.
A naked short does not 'borrow' anything. If I was to naked short a stock, I would have the ability to initiate a sell order that is backed by nothing real and tangible. I would just sell into the market and gather the proceeds and disappear. I would never need to borrow.
As to your analogy, you have a skewed point that the federal reserve can increase the money in circulation by creating it out of thin air. But 'the intent' is quite different. It is not intended to defraud rather it is to regulate money supply amongst other things.
A naked short, other than allowed for specialists and market makers, has a criminal intent to defraud companies and investors.
I'm not sure you can equate or otherwise compare the actions of the Federal Reserve to naked shorters.
Naked shorting I believe is also a relatively recent phenomenon in stock exchange history, that is in terms of its broad effects. What I mean is that electronic trading transactions have made it much easier to naked short stocks without a trace. This is why it is important for Congress to address the capital markets as to naked shorting. It is much more prevalent today than at any other point in history because of electronic trading.
Are you sure you understand the difference between shorting and naked shorting?
Please also note that the Financial Times is not a journal run by idiots.
One is where you said a "..naked short... has a criminal intent to defraud..." I'm saying that "intent" is the state of a person's mind that directs action toward a goal --you didn't want to say that shorts could have intent. My point is that when permitted by law, it's possible for a broker to make a short position for a client without contracting to borrow shares ---AKA issue a naked short, and still have no intent to defraud. Of course, if the law doesn't permit it then 'intent' isn't even relevant.
Second, when the Fed lowers interest rates, anyone who borrows money, and uses the borrowed money as collateral for another loan is creating new money out of 'thin air'. With the money supply, the new 'thin-air' money is just as valuable as any other money, just as the shorted stock has the same price, value, and dividends as the original share. There could be a problem with non-monetary factors like say, voting power of the shares, but that's the kind of thing the SEC's regs could sort out.
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