During last week’s testimony to the Senate Banking Committee from Bear Stearns (BSC) and JP Morgan (JPM), the world's leading bankers from Humungous Bank & Broker seemed to be in tears over the naked shorting, organized and otherwise, that had gone on in the BSC stock, going so far even as to infer that that problem, not the illiquid assets of Bear unwanted by other bankers, was the real issue.
Surprise, surprise; only when their houses are affected by vermin do these people speak up and admit that just maybe Patrick Byrne of Overstock.com (OSTK), whom the same illegal short selling syndicates have tried to destroy, slander and humiliate, may have been right after all.
(From the Overstock.com website) "Patrick Byrne is waging a fight with Wall Street over naked short selling. He believes that, through the practice of naked shorting, Wall Street is cheating Main Street America and destroying small companies for a profit. Byrne feels that the SEC is failing to protect retail investors and small companies because it has been captured by Wall Street, and that the New York financial press is similarly co-opted. Byrne believes that the SEC's efforts to eliminate this abusive practice are falling short, not simply for Overstock (which has itself been on the Regulation SHO Threshold list for over two years), but in a way that creates the possibility of systemic risk for our financial world."
Of course Patrick Byrne was right. He was up against the most powerful network in the world, HB&B, and Patrick is just a guy like you and me, trying to make a living doing the right thing, while the last thing the leaders of HB&B want is social equity. They want to control us, plain and simple. Now that naked shorting is threatening their control of the capital markets, they speak up.
That is the entire point to my blog, which is to say that the owners of capital have been made subservient to those who run the credit-based financial services industry in the world, which has been headed by Mr. Moral Hazard himself, Henry Paulson.
Who were the people who permitted naked short selling in the past? Why, it’s HB&B. If these investment bankers had refused to allow unsupported short sale trading, this issue would be a non-starter. But they liked the extra commissions and knew that the practice was being done by their best clients and friends, so they allowed it.
We have discussed this issue at length here, in full support of our friend Dave Patch who has taken this fight to the SEC.
Finally some positive response from the SEC. Well done Patchie.
From: OIG [mailto:OIG@SEC.GOV] Sent: Friday, April 04, 2008 1:14 PM To: Patch, David (GE Infra, Aviation, Non-GE, US) Subject: Proposed Response on Naked Short Selling Dear Mr. Patch, We are planning on sending an update regarding the naked short selling issue to the investors who have previously expressed their concerns on this subject to us. Specifically, we plan to send out an email that mentions our meeting with you. We wanted to show you our proposed email (which we've copied below) before we send it to the investors who have corresponded with us. Please let us know if you have any thoughts on our proposed email. “ *** You previously contacted the Office of Inspector General on the subject of naked short selling. We would like to provide you with an update on our progress regarding this issue. We have conducted a thorough review of all the correspondence provided to us about naked short selling. We also met with Mr. David Patch on Wednesday, March 26, 2008, at which time he gave us an extensive briefing on this topic. We understand the seriousness of the concerns about naked short selling and have begun looking into potential audit issues related to this matter. Thank you again for providing us with information about naked short selling and we will keep you advised of further developments on this topic. *** “ Thank you, Mary Beth Sullivan Counsel to the Inspector General Office of Inspector General U.S. Securities & Exchange Commission
What we need to do is to send letters of support (e-mail) to Dave Patch (idpatch@comcast.net), particularly if you are concerned about specific cases where you believe the illegal naked shorting to be happening. Let Patchie deliver them to the SEC, where they will be heard.
By the way, I once did a blog headed "Short selling is not un-American". I couldn't find the article, but this reference was to another one that was kind of fun doing.
Mr. Sell-Side: Stop this nonsense. You'll never get rid of me! You short-seller, you.
I ought to call the SEC. Maybe even the President, because you're Un-American.
Wizard: Thankfully it's not un-American to be a short-seller. On the other hand, Mr. Sell-Side; in the USA alone, the Government's SEC sees fit to permit Buy-Side to pay its mutual fund managers directly for advisory fees the shocking total of $80 billion dollars annually -- over 1.1% of over $7 trillion -- which is a travesty when, as Mr. Morningstar tells us...
So, the short selling is ok; it's the problem called "naked shorting".
I wrote another one in 2006 called “A Failure to Deliver” in which Kaimu pointed directly to the main offending culprit. Guess who? It was Jamie Dimon, the JP Morgan CEO who was the man giving testimony to the Senate Banking Committee. Kaimu also outlined, as he has on many occasions, the dire straits facing Patrick Byrne in his fight against Wall Street. This is all coming full circle.
We are here to learn the truth, right? Re-read the “Failure to Deliver” article until you come to the point of it all – the problem at the DTCC that needs to be fixed.
The current rules don't require the brokers to fix the trades by buying shares to cover their short positions after 13 days, they merely say that if the trades aren't fixed, the broker can't do any more short-sales in that security without borrowing or arranging to borrow the stock.
The Depository Trust & Clearing Corp., the New York clearing house that is owned by the big brokerage houses and whose mission is to settle and clear the lion's share of the daily stock transactions that occur in the markets, says it has no power to force brokers to fix the trades either, a fact that also frustrates critics of the current system.
"We don't have any power or legal authority to regulate or stop short-selling, naked or otherwise," the DTCC says on its Web site. "We also have no power to force member firms to close out or resolve fails to deliver."
About ten years ago, I gave a formal presentation in a major hearing conducted by the Canadian Securities Administrators, chaired by the heads of the nine major Provincial Securities Commissions. This hearing on the future of electronic markets heard presentations from every axe-grinder in banking and capital markets in the world, from the Investment Dealers Association, all the stock exchanges and ETN’s, all the major info services, Bloomberg, Instinet, and so on.
The acting-Executive Director of the Ontario Securities Commission had asked me to present material that would serve the public interest. He gave me almost 30 minutes. So I gave my usual song-and-dance about the need to break up the broker-agent from the dealer-principal; separate the credit-based financial system from the capital market; and, along with flow diagrams even, I even showed how control of the Depository Trust & Clearing organization had to be taken away from HB&B, and put under the control of private banks that serve only the client.
The people in that room either didn’t understand the magnitude of what I was saying or they scoffed that I could break their control of the system. My associates have always said I am 15 years early.
I do agree that I am always thinking ahead, analyzing the problems, and formulating solutions. It helps me see the enemy. Patrick Byrne is not the enemy. Those Senators were staring for the afternoon at two of them, calling them wonderfully successful people and all. Yes, but for what reasons and at whose expense?
We will never have social equity unless and until the capital markets are freed of the iron fist of Humungous Bank & Broker.
I am taking time to teach you that what transpired in Congress this week, at least the pieces we were able to see on TV, was presented as a clown show, but in fact was a start to getting to the truth. All of you need to seize the moment. You have to understand that these people who run HB&B are an organized gang, hiding behind one another’s skirts, with no intention of giving up control over you. But you now see who they are. They put their pants on same as you and me. In fact, I’ll go so far to say they couldn’t carry the lunch pail of the average steelworker or auto assembly line worker who still have jobs that these people haven’t helped shipped off to countries that are cheaper but have bad labor practices, leaving 25% of Americans in debt to them with underwater mortgages and credit card debts they cannot escape.
Yes, finally, Mom & Pop got to see their masters, the people they have become slaves to. Recognizing the enemy is the start. Yes, these are Henry’s friends, and sad to say, unless Congress and the SEC do an about face here, the new system will be called Henry’s Rules.
To be crystal clear, I am not saying one bad thing about these firms; just about the control they have in the present structure and the executive managers who will do pretty much anything to keep in control. In fact, I said already my heart goes out to the Bear Stearns employees, who, like you, get paid to do a job and don’t expect to have their life-built pensions wiped out in a couple hours. I am happy to see them suing their bosses. What goes around comes around.
I was criticized, as I had expected, for saying two weeks ago that lawyers were changing the fundamental rules of capital markets, which is that a trade is a trade; not a maybe trade. The lawyers here were saying to me that they just carry the water for these investment bankers, and that’s where I disagree. A desperate banker doesn’t know the law, but will ask the lawyers what might be possible to help solve their dilemma. Lawyers seeking fees will not care a whit about the public interest, and that’s the problem. As soon as the JP Morgan-Bear-Fed deal was consummated at $2/share and reported, and then subsequently changed, the SEC (and Congress) had an obligation to the People to step in and stop the change. A deal was a deal. The bullet was out of the gun. Hundreds of millions of dollars, if not much more, was subsequently transacted on the basis that Bear had sold out for $2.
Congress also should be totally embarrassed that once Wall Street figured out the impact of the $29 billion guarantee, the Bear shares were worth more. By changing the deal, the JP Morgan shareholders got screwed because after the merger, there is greater dilution. And the public got screwed because if Bear shares were actually worth $10, then a full $29 billion guarantee from the Fed was not needed.
Now, it goes without saying that the new unwritten rule on Wall Street is that no investment bank of any large size is going to be allowed to fail; that the People’s money, not the shareholders capital, will stand behind the company debts and the mistakes of executive management. That offends me because I stand up for social equity, not socialism.
This latest situation in Washington is simply mind-boggling to the owners of capital in America who once had a measure of faith in their capital market. Now it is apparent that the market will be played by Henry’s Rules, and Mr. Moral Hazard had the arrogance to not even show his face at these crucial hearings. That’s not right.
A final note regarding the Treasury Secretary; I ask, is it possible under the freedom of information act to see Paulson’s income tax returns and his so-called blind trust? I think America had better awaken to what’s happening here before the upcoming change in the Administration, during which time certain people will be trying to accomplish whatever they can for themselves, Friends & Family.
This week the markets were in a state of confusion because of all the happenings in Washington. Traders are uncertain regarding the new power of HB&B, so far giving them the benefit of the doubt.
No comments:
Post a Comment