And here is REFCO with well over $10 billion of securities it sold, but hasn't delivered.
There are three possible explanations:
1) Mr. Thompson parsed the truth with such dexterity that the number he advanced was incorrect in the extreme.
2) The number Mr. Thompson advanced did not include ex-clearing FTD's. For a complete primer on the implications of this, as well as the terminology, Click Here.
3) Those are all legitimate short sales. Possible. Somehow though my gut says that isn't the case. Legitimate short sales would have shares borrowed prior to selling and would have the borrowed shares shown as an asset, offsetting the sold shares. Based on that reasoning the "sold but not yet purchased" shares should be nil. But why speculate?
I think it's time that we find out, no? Why guess any longer - let's get it out on the table.
Because the way it looks to me, REFCO is only one entity, and has over $10 billion on the books of FTD's. And until I see differently, there's not one bit of data to suggest that most of the $10 billion is legit.
These guys were being sanctioned for being involved in a prior naked short selling scheme, and were known as the go to guys for questionable types desiring greater "flexibility" in their trading. They lied to their auditors, the SEC and the public about their financial condition. Their CEO has been cuffed. I think there's reason to believe that this liability is the smoking gun the industry has been dreading.
What we do know is that the wild eyed conspiracy theories that I have been accused of spinning now look tame. One company appears to have over $10 billion in FTD's. That is no longer a speculation or a conspiracy theory. It is a fact. As in immutable, manifest, and clear.
You heard about this here first. Many months ago. In March, when I was speculating about a catastrophically large level of fails in the system, being covered up by the brokers and the SEC. When I was writing about special purpose entities being used to hide the size of the problem.
And here we are.
The whole BK filing can be viewed with horror here.
I'm not going to go into the 2% of their claimed assets that are intangibles. Or the offsetting assets which collateralize the FTD's. It doesn't really matter. If I'm right. the first time some of those shares are bought in the $10 billion will likely jump to $20 billion, and several large hedge funds will likely vaporize as their cash requirements eclipse their assets.
This is the systemic risk issue I've been warning about.
And this is just REFCO. One company. Only one.
I think we need to know what the composition of the $10 billion actually is.
Because the problem is now one of credibility. Our regulators and the DTCC appear to have been misstating the extent of this crisis to the point where their numbers don't even begin to speak to the real size of the problem. No wonder they hate discussing it. No wonder they grandfathered in all the prior fails. No wonder it justifies secrecy rivaling the Manhattan Project. I'd like to see a list by security of those FTD's. There's no point in keeping them secret anymore. I'd like to see how many NFI shares, and OSTK shares, and TASR shares, and NAVR shares are in there. And I'd like to understand who is violating the rules to the tune of $10 billion just at REFCO. I think that is reasonable. The hackneyed platitudes that the SEC "doesn't want to cause volatility or give away the trading secrets of the participants" are hollow. We don't want speculations and more guesses as to how much of the $10 billion are FTD's. We deserve facts now.
And guess what? We know the trading secret now. You just print shares in the back room to your heart's content. It isn't a secret. And frankly, IT NEVER SHOULD HAVE BEEN.
I'd like to see a Congressional hearing immediately, and I'd further like to hear Shelby share with us why he didn't feel that it was time yet to convene the Senate Banking Committee about the matter, when Bennett was pushing for it.
I'd like to see a special prosecutor cut through the secrecy and BS and tell us how many billions, hundreds of billions, have been stolen from us, and by whom.
And I'd like to see the system do its bare minimum job, and settle the trades.
This is going to be the biggest crisis to hit Wall Street in our generation. Mark my words. Cat's out of the bag now. And the SEC and Wall Street have some explaining to do. And some stock to buy, seems like.
$10 billion with just one company at today's wildly depressed prices. If those are all, or mostly FTD's, Houston, we have a problem.
If you've been wondering why your stocks don't ever seem to go up much, you now have a likely answer. The system has been printing billions and billions and billions of dollars worth of shares and selling them with predatory, unbridled aggression.
The class action attorneys are going to go crazy over this. What do the other, larger brokerages have hiding in the back room? How much bigger can this get? Are we talking trillion dollar real world contingent liability? Can anyone even guess at this point?
Is it really possible that the SEC has allowed Wall Street to steal trillions from us, using counterfeit shares? I don't know about you, but it sure now seems like any money I've lost in the market wasn't so much a function of bad luck or ineptness. It was theft, pure and simple. I was robbed. So were you. And now we see that the robbery isn't in our imaginations.
It's no longer speculation.
It is now a matter of the public record, and it is a national disgrace. Tell us what the $10 billion means. Level with us. It's about time.
And if those are FTD's, it's time to settle the trades, and make the perpetrators start paying their bills.
posted by bob obrien at 4:47 PM 7 comments Thursday, October 20, 2005 An Introduction to Naked Short Selling - Failing To Deliver I've been asked a number of times over the last week to come up with a one-stop shop where interested readers could learn enough about the naked short selling crisis to be dangerous. It isn't an editorial so much as it is the intro to a chapter in the book I am working on, thus it has been moved to a more appropriate place than the Sanity Check op-ed blog.
The piece has been made a permanent part of the NCANS.net site. It can be viewed here.
posted by bob obrien at 12:00 PM 10 comments
Crackpot post.
The most likely way that Hillary made this lucky score was that her friend at Tysons Foods made parallel but opposite investments with the same firm. Then, the transactions which did poorly were credited to his account, and the ones which prospered were assigned to his. Ultimately, she had a $100,000 gain, and he absorbed a $100,000 loss.
If so, then this was just a minor league version of the $10 billion gap just discovered. It's a matter of playing games with the short sales system, contrary to the laws on such transactions. If this outfit would play footsie with Hillary, and fast and loose with the SEC on that, it would surely do it with others for whom it wanted to "do a favor."
The only question now is who, beside the grateful taxpayers, will bear the losses just exposed. It won't be the fat cats who have already taken their money and run off into the woods. Laughing.
Congressman Billybob
Latest column: "Reporting on the 2,000th American Death in Iraq"
Greenspan saved Goldman Sachs from it's Long Term Capitol debacle. Who will save this company, thereby saving the markets once again?
bttt
Oct. 24 (Bloomberg) -- A buyout group led by the Dubai government and billionaire Ronald W. Burkle topped two rival offers for Refco Inc.'s future trading units, heating up the bidding for the collapsed New York-based company.
The Dubai group's offer of $828 million, based on the value of the futures business's regulated capital on Oct. 17, the day Refco filed for bankruptcy, beats a $768 million bid by J.C. Flowers & Co. and $790 million from Interactive Brokers Group LLC. Man Financial, a unit of Man Group Plc, and New York-based Marathon Asset Management may also make bids, according to papers filed in bankruptcy court in Manhattan.
More than 100 lawyers packed U.S. Bankruptcy Judge Robert Drain's hearing today as Refco and potential bidders argued about the rules under which an auction for Refco's assets should be held. The flurry of new bids may generate more money for Refco's creditors, who are owed more than $16 billion, according to the company's estimate as of the end of August.
The suits are going to take this country down.
Don't worry about Al Qaeda worry about the crooks on wall street.
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?