Posted on 09/21/2008 4:25:40 PM PDT by Danae
How did America get Screwed?
Forgive me, this is long, complex, and all of it can be backed up by real events and real numbers. This is where it starts.
The SEC rules state rather clearly, and have for some time, that transactions have 3 days to clear (SEC Rule 15c6-1). And that’s all it says. It does not specify what you cannot do, which in this case, is fail to deliver the stock in 3 days. It also does not specify that there would be PUNISHMENT for failing to do so. However, last week the SEC stopped short trades on 800 stocks, and made a change to 15c6-1v stating that there would now be punishment for Failing to Deliver, but didn’t say WHAT that punishment would be. It’s a start. But the horse is out of the barn and LONG gone. So is the money. Who is holding the bill? Well the American Tax Payer is, now that the Government has Nationalized Fannie Mae (FNM) and Freddie Mac (FMC), bailed out AIG, the insurer for FMC and FNM (guarantor of all those bad mortgages, AIG got the bill you see and went broke trying to pay it, and got hit by Naked Short traders who could see that this and other companies were failing, so they cleaned em out), Bear Sterns ( got really hit with Naked Short Sellers in the days before it died).. and on and on and on. Its not over yet folks. There will be more bank failures and depending on the size of them they will get on the Dole as well.
How does Naked Short Selling cause this??
How was this manipulated by the criminal element? Well, when pressed for the delivery of the stock they would hem and haw and delay, perhaps try to find the certificates from another hedge fund, in which case they would have to in the real world BUY them from the new source and then send them on to their Purchaser. Only that doesn’t happen. They never get the stock to the buyer, they just promise to, ignoring the 3 day rule. Does this happen in all short Trades? Heck no, most short trades deliver in 3 days. It’s the ones that do NOT that I am referring to.
How could they do this?
Because the rule did NOT specify PUNISHMENT if that indeed happened. They didn’t say what the punishment would be; it does not specify that there would BE a punishment.
That is a Loophole.
They closed that on Thursday of last week, thank goodness. There is a punishment now. They have not said what yet.
Everyone from the hedge funds involved, to the SEC to the IBanks the hedge funds trade through (looks like a Prime origination from inside the IBank – from a trusted source - , so at that point even the IBank doesn’t know that the stock is fraudulent! Its set up that way you see, to give further legitimacy to the purchase, and also to get it through the DTCC, the massive clearing house that only the Big Brokerages can use) to the SEC and then the DTCC, they knew about it and ignored it, turned the other way when it happened. They used the Media to spout idiocy like, "oh everyone does this, its OK".
Well no its not.
Its like buying a car from a dealer a thousand miles away, you wire him the cash, he promises to ship you the car. Only he doesn't actually have the car to sell, someone else does, and so the car you bought and paid for never gets shipped - the guy who sold it to you never owned it and never intended to ship it to you. He took the money and is now in Barbados with a couple of strippers.
Why did the SEC and the IBanks and the DTCC not to mention the CONGRESS let it all slide? Money. Lots and LOTS of money. It was estimated that in 2007 6 BILLION dollars in trades “Failed to Deliver” a DAY. How many trading days? Roughly 300 since the Uptick Rule expired. That’s 1.8 Trillion dollars gone since July 6 2007. Those IOU’s, the Stock IOU’s that were bought but never delivered, well someone PAID the money, but they never got the Stock. They own what amounts to a number in a computer. Those numbers do not go away, unless someone just erases them (Which tends to tip people off to the fact that it was fake to begin with. Those numbers add up, and this is just the tip of the iceburg. Now you begin to see the real scope of the problem. Loss of the Up-Tick rule basically told traders they could sell short with three days to produce the stock in question, only they just kept passing IOU’S instead of the stock – 6 Billion a day worth - Naked Short sellers took that to the bank, literally.
The numbers stay in the system.
If you want your stock certificate in your hand, you have to demand it and you will likely have to wait while they find them and in many cases, because there is so much “Failed to deliver” stock out there, and relatively few real stock certificates, the Broker comes back and says that they can’t find any. The Naked Short Selling Scammer sells you a NUMBER. Just judging from the dollar amounts we are talking about, 6 BILLION a day in failed trades – where the buyer pays but receives nothing, it’s not only wide spread, it’s a SIGNIFICANT portion of trades made in a day.
But where does the Money go?
The money goes to line the pockets of everyone that gets in the way. Media and journalists are paid to shut up, or to outright lie. Politicians are paid to ignore the problem, even while holding hearings on the issue, they do nothing. SEC regulators are paid to repeat nonsense like: “Well they have 3 days to deliver”, and rarely ever prosecute violators – their JOB. 1.8 Trillion will buy you a lot. So we have established that nefarious slime balls can indeed do this and get away with it. We have also established that there is a LOT of money to be made doing it. Simple factual evidence shows clearly that everyone who did NOT stop or prevent this practice likely had a good reason for doing so, reasons given them by those who practice this crime. In the form of money, threats, coercion, paybacks, favors, you name it, whatever it takes you know, there is a LOT of money at stake and they guys doing it are not at all opposed to offering 125,000$ for a campaign donation, they don’t even mind if they have to launder that money 3 or 5 times, heck it’s just cash and they got a LOT of it. What’s all this do the company whose stock you thought you bought? Well, because there are so many of its “stocks” out there, the law of supply and demand eventually kick in, high supply plus low demand = LOW stock Price. Artificially inflating the Supply kills the price. The Short sellers make money as the stock price FALLS, so the further they can force that price down, the more money they make. So they deliberately inject these fake stocks into their “Hedge funds” their Portfolio if you will that they sell to investors, and no one really SEES the numbers. But the companies who get hit with it see it. Because all of a sudden, their price starts falling, and the VOLUME the sheer volume of shares traded might be a couple hundred times the number of REAL shares they actually have in existence. If a company has 50,000 shares 30,000 remain in the hands of the company, and yet they have 1,000,000 shares traded in a day…. And the company doesn’t even have CLOSE to that amount???... yea it drives the price down. Thousands of companies have been hit this way, hundreds have been driven out of business because they can no longer raise capital with their stock. Naked Short Selling, where promised and purchased and paid for stocks never make it into the hands of the entity buying them in 3 days is utterly illegal. This out to make you wonder…. Where is our Media in all this? Well, just watch a few minutes of Mad Money on CNBC… According to them, and they are the pack leaders, Naked short selling is rare, and most if not all short sales are just great! Well most short sells ARE great! No Doubt. However, the insidious lie they just told: NSS isn’t a big issue… well if 6 Billion a day is not big to them what is? 1.5 Trillion a year isn’t a big deal? The media is lying to us, confusing the issues, and otherwise rubbing sunshine in our eyes. Why is it that so many banks are failing? Because there is so much NSS paper out there, they have no idea what anything is worth anymore, in other words, a FAILURE OF CONFIDANCE – where banks stop lending to one another. And that is EXACTLY what has happened. Only NOW the media is screaming for the re-instatement of the Up-Tick rule, that’s nice, but its time to PUNISH those that did it.
So now we have the federal Government stepping in…. Oh JOY! (barfs noisily in nearby trashcan) Now the FED is going to come in and literally buy up all those Naked Short Sales. In other words, give money to the banks to cover all the money they really owe to the poor bloke to who got sold a number instead of a stock. You see, the big investment banks realized that people were starting to come in and cash out their accounts, and in many cases these banks started hording cash. 90 billion or so each or what ever they had outstanding (they are only required to have a percentage of their outstanding on hand, like 15% or something), those that could do that anyway, the little guys down the food chain could not do that so they went bankrupt paying out their accounts, and then could not borrow because no one was lending anymore. CRASH, everything comes to a shuddering halt. Then BIG banks start to go. Bear Sterns et al. At this stage, even those big banks are getting attacked by Short sellers, and criminal Naked Short Sellers, driving their own Stock down, and thereby looting the big banks with the further wealth going to the NSS. It’s a VISCIOUS circle. And astoundingly huge vicious circle.
So much money, so many individuals, part of its success as a scheme is that it’s so freakin huge that few can really follow it.
That does not mean that it does not exist, clearly it does. We are seeing the effects now. Its so big a problem, that its brought our financial system to the point of utter collapse. Not just ours, Russia, China, UK, Japan… all of these countries are having this very problem. Our financial system is such a huge and powerful engine. Most countries have some dealing with US corporations at some level or another. Trade, Currency exchange, foreign investment… And we have a rule in place that Federal Regulators are IGNORING. Even in the face of Staggering losses, they continue to give free passes to the Perps. Congress refuses to deal with it. The Buck largely stops with congress, they control the $$$. Until Armageddon is at the door… which is now. Now the Fed will buy it all out and we will start from zero. Be ready for this next…. They are going to forgive all that NSS paper, pay it off with tax payer dollars and NO ONE will get prosecuted for it. Or if anyone does it will be small fry. Individuals investors… Mom and Dad… Just lost it all. Think Enron was big?? HA! Enron was a drop in the bucket.
Who is responsible: Naked Short Sellers; SEC Regulators that refused to enforce the rules and did not prosecute those who violated the rules; Congress - the congress men and women who knew through hearings and membership on the relevant committees who listened and did nothing; The Main Stream Media who fraudulently fed us disinformation, who told us that it was all ok and Legal and what not. There will be a few more added to this list as more information becomes available I am sure
What are we going to do about it?
1) Ok, yea, we all get that there has to be $$$ in the system for it to work and there has to be CONFIDANCE in those funds for that to succeed. The Bailout is utterly essential for that to happen. Ok, that’s one big nasty hot poker, but we are going to take that one. No choice. The alternative is simply not even imaginable; its complete economic failure. It means no food at the grocery store to buy, for those that even have the cash to do it. And goes on from there. Joblessness will be the norm. No choice, we are going to take the hit to avoid it.
2) The Regulations allowing this all to have happened, yea, that has GOT to be addressed, the Loopholes has got to be eliminated. Reinstating the Up-tick rule is just a starting point.
3) Heads got to roll. Whose?
• SEC Regulators involved.
• Congressional Committees involved MUST be held to LEGAL account by the American People – Hearings and Trials. The congress men and women who received excessive campaign contributions from financial institutions such as Fannie Mae and Freddie Mac, that’s just the start. The whole system is corrupt. We start with the big fry, and Yea, Obama and Dodd are at the top of the food chain. Too bad, I guess they should not have been acting in their own best self interest instead of the public they were elected to serve. Note to Obama, yes Commissions and Hearings are absolutely in order, we don’t need a “Leader” to get us out of this… we need to know what happened, who did it, and PUNISH them. If you are one of those or your advisors is, well too damn bad. It’s Payback time boys. Note to all congresscritters: You side with the guys who gave you the money, or you side with the guys that voted you into office, and yea, WE ARE WATCHING, now you have our COMPLETE attention.
• The Media guilty of outright misleading and lying to the public about what was really happening should be prosecuted to the full extent of the law. They made the wider public think it was all good, well it was real good for your buddies in the financial markets that were feeding you the Happy/joy medicine. For the rest of the public you lied to, well you are part of the problem and should pay for it.
• The Brokerage houses guilty of taking NSS trades from either their own or associated Hedge Funds must be called to account, they owe a lot of people a LOT of money.
• The DTCC must be held to account, there is currently ZERO oversight or responsibility that the DTCC pays ANY heed to. No one can come in and look at their records; no one is allowed to even tell them that they have the authority to do so. That has to change. The DTCC records EVERYTHING – every single transaction. If the American people are not allowed to “check the books” we have no way of knowing if we are being dealt with in any sort of manner resembling Ethical, let alone Legal.
Will there be more? Oh you bet. Count on that. This is a planet sized pond and we just had a rock the size of the moon thrown into it, the ripples are going to be spreading for a while yet.
Will we get out from under this?
I think so.
The biggest question I have, the question that MUST be answered in an exemplary manner, is this:
How do we prevent it from happening again in 10 years?
It’s up to US, the American People, we are the ones that hold our government accountable, our big stick is our Vote. In my humble Opinion, every single congress person in office today on the committees that have been hearing of these abuses needs to RESIGN immediately. Both houses. That is infinitely better than letting them judge and police themselves; they have proven in spades they cannot do that. They failed in their duty to their OATH, their Pledge of allegiance; they failed utterly to do the right thing. They failed to keep their word and they failed us, we the People. I am calling for massive resignations. We can no longer trust congress. Just as with the financial markets, there is a Crisis of Faith in Congress. There is only one solution I trust; Time for some new blood.
Good luck getting anyone to resign. The won’t even vote to impeach each other. Throw the bums out.
It goes way...WAY beyond this.
Listen to the breakdown of events by Mark Levin. He walks step by step through the entire process.
http://hotair.com/archives/2008/09/21/audio-mark-levin-on-the-subprime-crisis/
Simply publishing their names, addresses, etc. on the net would serve to instill in some of their victims a feeling of hope (for revenge no doubt).
They could also be put on the Homeland Security "no fly list".
Simply publishing their names, addresses, etc. on the net would serve to instill in some of their victims a feeling of hope (for revenge no doubt).
They could also be put on the Homeland Security "no fly list".
Yep! I would imagine that there are more than a few roaches that fled the country in the last 7 days. Lots and lots. However, congress critters are still in reach.
Oh I agree! There is SO much more than even that. But it was already a huge vanity post !! :)
We get them to resign by starting here, with posts just like that, and making them go Viral. Wonderful people making and putting up Youtube Ads. There are many powerful and elite people that lurk here. Of BOTH parties. We have a tool at our disposal. We owned Dan Rather and document gate, this is a LOT bigger than that. For sure though, doing nothing will get us more of the same.
It’s a very good post. Thanks.
But you might get some comments about you being against “freedom” and “let the market work” as if a market should not be policed like any other human enterprise. No enforcement, no compliance, especially where there’s money to be made.
Youahve a point, but reallly anyone making is it is making an agrument in favor of thievery. Because thats what it is. Thievery on a MASSIVE scale. That ain’t right. If it is, then no law in the United States has any validity at all.
No one has the liberty to steal.
Why shouldn't the SEC & DTCC look the other way at naked shorts. They get transaction fees for the sales.
There should have been no fees for all “failed to deliver” and things would have been different.
BTTT
bookmark
GRRREAT post/thread. Appropriate screen name.
I agree 100%
There will never be Congressional hearings as long as democrats are in charge. I even have my doubts if republicans were to get control back..
No need to punish the cheaters who get unlucky if there's no upside for the ones who get lucky.
Addendum: my last remark was a little flip. There should still be punishment for people who naked short for purposes of causing market disturbances, but eliminating the immediate upside for such people should help a lot.
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