'Short sellers' boosted bets on Lehman, AIG, WaMu

LA Times ^ | 9/24/08 | various

[BurbankKarl]

Bearish "short sales" of shares of Lehman Bros. Holdings Inc. and insurance giant American International Group jumped in the first two weeks of September, leading up to the latest credit crisis that drove Lehman to file for bankruptcy protection and forced a federal rescue of AIG.

Washington Mutual Inc. also remained a big target of short sellers.

The data, in the regular biweekly short-interest report from the New York Stock Exchange released Wednesday, will give more ammo to people who believe short sellers have been trying to orchestrate the demise of major financial firms.

Of course, the numbers don’t prove that. All we know for sure from the data is that either 1) more speculators expected the stocks to go lower or 2) more investors were trying to hedge their portfolios by using short positions in Lehman, AIG and other financial issues.

But if some short sellers were in fact engaged in a "bear raid" on the stocks to drive them lower by spreading rumors that the companies might fail, regulators now have more data they can mine to try and prove that.

[bruinbirdman]

So, why would someone lend a perfectly good Lehman share to someone so they could run the price down? When they give you back your share(plus maybe a couple weeks interest), your shares are worth half as much, or nothing?

yitbos

[Tempest]

So how is this activity diffrent than what happens in Vegas?

Are we going to bailout Casinos next?

[Porterville]

financial terrorism... russia? china? iran?

[Nam Vet]

I'm curious just who and when the uptick requirement for short sales was eliminated. That sure was a move quietly done.

Nam Vet

[BurbankKarl]

I read Calpers (State Employees) and Calstrs (Teachers)were big lenders of shares to short sellers. I imagine the other large state employee pension funds were engaged in this too. Not sure how it works, other than charging a fee to borrow the shares...of course, if it goes down, the shorter buys the actually lower priced shares for delivery (and not the higher priced borrowed shares)

http://blog.riskmetrics.com/2008/09/001217print.html

The California Public Employees’ Retirement System (CalPERS), the California State Teachers’ Retirement System, the New York State Common Retirement Fund, and Maryland’s state pension fund have acted recently to limit the lending of financial stocks. The New Jersey Division of Investment stopped loaning shares to short sellers in July, according to the Reuters news service. The number of stocks excluded from share-lending programs varies by institution; CalPERS pulled four stocks, while the New York fund removed 19 companies.

[BurbankKarl]

http://en.wikipedia.org/wiki/Uptick

The SEC eliminated the uptick rule on July 6, 2007.[3] The elimination of the rule was preceded by a SEC order, placed on July 28, 2004, to create a one-year pilot temporarily suspending the uptick rule on select securities. The purpose of the suspension was so that the commission could study the effectiveness of the rule. The SEC’s Office of Economic Analysis and academic researchers provided the SEC with analysis of the data obtained during the pilot. The general consensus was against the uptick rule, with the commission concluding that the uptick rule “modestly reduce[d] liquidity and do[es] not appear necessary to prevent manipulation.”[2]

The rule was originally put in place to avoid the perpetration of a financial crime known as a bear raid. However, short sellers themselves viewed the rule as “largely symbolic” and having little actual effect on short selling.[4]

[Positive]

Ever hear of “shorting against the box?”

[BurbankKarl]

It would be curious as to who lobbied for its elimination.....and who paid them.

I dont necessarily buy into governments causing all this upheaval, rather than large pocketed people who manipulated enough rules to cause it.

[downwdims]

Supposidly the Software can’t process an uptick rule

[Nathan Zachary]

"financial terrorism... russia? china? iran?"

Soros?

[Nathan Zachary]

"I'm curious just who and when the uptick requirement for short sales was eliminated. That sure was a move quietly done."

Congress did that during the last Clinton term I believe.

[tallyhoe]

Don’t forget this could be our enemies trying to get back at the United States. Couple of countries come to mind Iran, Venezuela. Maybe even Russia, they have been taking in lots of Oil profits lately and 1 billion here one billion there on shorts sells might do the trick.

[Nathan Zachary]

"I'm curious just who and when the uptick requirement for short sales was eliminated. That sure was a move quietly done."

Congress did that during the last Clinton term I believe. or was that something else?

[ccmay]

So, why would someone lend a perfectly good Lehman share to someone so they could run the price down?

I thought the big problem was naked shorting. Did I miss something?

-ccm

[Earthdweller]

Start with that chick on Fox news that was freaking out on the day programing...spreading hysteria.

[familyop]

"...will give more ammo to people who believe short sellers have been trying to orchestrate the demise of major financial firms."

They would only need to cause the demise of smaller companies (clients) to accomplish the same.