Olympic Class Clusterfuck
That's all there is to it.
Two and a half years ago, Overstock.com CEO Patrick Byrne penned an editorial for The Wall Street Journal, warning that widespread stock manipulation schemes - including abusive naked short selling - were threatening the health of America's financial markets. But it wasn't published. "An editor at The Journal asked me to write …
Wikipedia will always be subject to these type of battles for control of content. There is no real peer review, just bully reviewing and the one with the most wiki-cred wins. If someone wants to pretend a problem doesn't exist and works hard enough at it, they can make it disappear.
Wikipedia is great for movie trivia, but really one has to take much of it with a grain of salt.
Paris 'cos I'm sure she's abused naked shorts.
I remember Byrne making dramatically-veiled references to "people" in "Eastern Europe" who were behind the whole thing.
I guess those guys aren't part of it anymore?
Although this whole story is, as Grundy puts it, a classic example of an Olympic Clusterfuck. There are going to be some AWESOME books written about this, it's got everything you'd want for "Bonfire Of The Vanities 2". Spurned lovers; family dysfunction; the New Media; and it all culminates in a gigantic stock-market crash.
Normally you'd be correct but there is so much more to the story about Patrick Byrne, naked short selling, Wikipedia editors and SlimVirgin. Byrne knew SlimVirgin in college (where she randomly changed her accent among other weirdness) - based on her actions I'd say he might know her in the Biblical sense as well since she is acting just like a jilted lover.
It's a real mess that has actually had a negative impact on world financial markets because the peasants didn't understand what what going on (if in doubt look at some of the El Reg comments in previous short selling stories).
Fine, naked short selling is evil, but remember, but all he's actually saying is that it hastened what was already going to happen.
The problems with credit default swaps and CDO's were already in play. Short sellers identified the problem and acted. If they had not, the risk portfolios would have KEPT ON GROWING and the final result would have been even worse.
For all concerned, things would have actually turned out better and with lower impact if more people had sold more naked shorts much much sooner, back when it was only a $100 billion problem instead of a $1 trillion problem.
Notwithstanding that el Reg may have had the wrong end of the stick in previous articles on the subject, this article (and the series on Phorm, along with a few other notables) actually has me thinking that The Register is a world-class journalistic publication. Keep up the good work, but don't let praise like this go to your heads!
Just read this, then every other article on el-reg containing the words "Patrick Byrne".
Seems he's been the butt of a few jokes/articles/put-downs over the past 2 years.
Is the reg now saying "oops, he was right all along" or "hey look, the muppet has got something right for a change, shoot enough arrows and something will hit the target".
The near-collapse of an entire super-power economy is a pretty big arrow methinks :p
....and ban short selling entirely.
This happened in 1969/70 during the Poseidon mining bubble in Australia. Combined short selling volume of one of the mining companies (Southern Cross?) exceeded its total registered shares. As a result, at the end of that account many short sellers couldn't deliver the stock. What a surprise!
The Australian Stock Exchange stopped all trading in the short sold stock and forced all short sellers to complete at the agreed price. Needless to say, those holding the shares could and did charge what they liked and short sellers lost their shirts. When this activity was complete the ASE banned all forms of short selling and then unfroze the stock. Poetic justice if you ask me!
Short selling should be banned everywhere as a disreputable practise.
Capitalism. The private ownership of capital. Whether it is manufacturing or anything else. Sure, the stock market is where a company is supposed to sell a portion of ownership to raise money, it has become so much more. It is a slot machine without a handle to pull.
Like futures, yes, orange juice makers or oil companies are supposed to use this market to fix in a price for a commodity it needs in the future. The producer of the commodity can then be assured of a known return and the buyer can plan on costs and availability of the commodity in the future when they need it. However, it has become a change for people who will never produce, deliver or use a commodity to jump in and try to make a profit. That, it seems to me, would be gambling.
Short selling is fine, as long as you don't manipulate the market in an attempt to make the stock price fall to make your profit. Simple, huh? Naked short selling should never ever be allowed. If you don't have it and you sell it, well, that seems to me to be fraud. "Oh, I was selling a bridge... it wasn't fraud officer. I planned on buying one to sell it. See? I just ran out of funds and couldn't buy it to sell what I had promised."
Idiots on the stock market looking for short term profits and companies doing questionable or even out right illegal things to meet market expectations each quarter leads to the US loaning the US automakers $25 Billion dollars (with another possible $25 Billion) to retool. Why? Because they were chasing the short term, high margin profits of gas guzzling SUVs.
Once again, we have to bail out those who should be drawn and quartered.
Anyone that uses WIKI as an accredited source is no longer worthy of listening to. They lost their credibility. Granted, I use it as a source... for football players history.
This won't be the end of capitalism. We keep bailing it out.
"The problems with credit default swaps and CDO's were already in play. Short sellers identified the problem and acted. If they had not, the risk portfolios would have KEPT ON GROWING..."
So, what, we should THANK these people for defrauding billions of dollars out of the market, destroying hundreds of companies, bribing members of the regulatory boards involved, and libeling the business owners who called them on it? Gosh, I hate to see what they'd be like if they WEREN'T such nice people...
@Jaowon: I think that the Reg's attitude towards Byrne has been something like "amused tolerance"; they agree that he has a point about naked shorting being bad (and El Reg's stance towards Wikipedia is long since known), but then Byrne goes off onto tangents about the Russian Mafia and international conspiracies, and you can practically see Cade Metz nod and wink at the camera.
@Darren: "Naked short selling should never ever be allowed."
Well, ha ha, that's the funny thing: it ISN'T allowed. Naked shorting is supposed to result in heavy fines. But the SEC and DTCC, for the last decade, have been too busy doing...uh, something...anyway, they haven't enforced that regulation in a very long time.
First, El Reg owes me no apology. In particular, as someone said above, this "actually has me thinking that The Register is a world-class journalistic publication." Cade deserves great credit. The fact that he took some time to connect these dots does not matter: the fact is, there are a dozen journalists who knew at least some of the dots, and none could see the picture emerge other than Cade. It matters little to me that as he did so, he kept a foot, and then a toe, in the camp of conventional thought: in the end, he was the guy who stepped out of it first. The tongue-in-cheek stuff of earlier El Reg articles were a small price to pay.
Second, in response to the people saying things like, "So I guess the Russian Mafia aren't involved anymore?" I respond, that's is just more non sequitur. There is nothing in here that says OC is not involved. In fact, here is a Forbes story from 20 months ago that El Reg readers should take a look at, and then see what dots they can connect for themselves:
http://www.forbes.com/home/free_forbes/2007/0212/064.html (Understand that the way PIPEs are gamed is through naked short selling, though Vardi treads lightly on explaining why.)
Third, if you want to get the true Big Picture, and understand how this all relates to today's headlines, and enter a $75,000 contest where the readers decide who wins the prizes, read
http://www.deepcapture.com/the-story-of-deep-capture-by-mark-mitchell/ . Warning: PG-13, and it is 69 pages of Thomas Pynchon meets John Grisham, and is a hell of a dense story to make sense of.
Four and finally, after three years of trying to get people to see the implications of what is going on, Iamzippy's quote made my day: "There's shit, and then there's heavy-duty shit. This article is awesome, and we've not heard the last." You got it. You got it. You got it.
On March 11, several days before Bear Stearns collapsed, someone bought $1.7 million dollars of put options 50% below what was the current price, options that expired 10 days later. This is an insane bet, one that nobody would have made. Yet whoever it was, they made a profit of over $270 million dollars.
GO muckraking journalism!
This goes well beyond the integrity of Wikipedia, it gets into the integrity of the financial press and how far they will go to protect their sources. There is a reason why Gary Weiss risked his career on this and most likely somebody had to pay him to act in this manner. More concerning, and based on the massive circle of the financial media Weiss circulated with on this issue, it really raises doubts about the financial press and their desire to educate the public.
Now, with all we now know, you must ask how far those that convinced Weiss to take on this risk will go. would they persuade economists to fudge analysis to tout their positions? like Wikipedia, there seems to be a heavy diversion of opinion coming from economists with ties to Yale University. Many coming out "independantly" and citing the same party line. And ironically, the same party line as Weiss and his circle of friends.
This so-called journalist is just another scumbag that deserves the axe ... more literally than figuratively in my opinion. With all the deranged loonies and criminals in America, you'd think that one of them would hit upon the keen notion of doing good by whacking these clowns that are raping us ... folk like the scumbag former ceo's of Enron, Worldcom, Bear Stearns (sp?), Merril Lynch, Washington Mutual, etc. etc. etc. that loot and pillage and walk away with millions of innocent people's dollars in their pockets. Well, that's my opinion at least :-).
Byrne is a loon. Hell, read his post on this thread. Read as much as he as written as you can. The fact that he latched on to naked short selling as one of his obsessions hardly means he is sane. Well, unless dark jedi really are behind much of this.
As for Weiss. I don't really give a shit about Wiki politics, but after some previous articles here on the Weiss vs. Byrne's hired proxy issue, there didn't seem to be anything untoward in the edits. Byrne or someone writing on his behalf kept making edits that insisted that naked short selling was criminal and tossed a bunch of insults at any and all who might possibly do it. The language was not of a tone that would fit an encyclopedia--or at least, I don't recall Britannica using that sort of language. Someone else kept changing things back to something that described naked short selling as an activity that was currently acceptable, but dubious ethically if not legally. The text was rather dry, didn't toss anything resembling an insult around...was quite boring, really. In short, like an encyclopedia.
I just don't see some nefarious dark conspiracy behind changes that seemed designed to make sure Wikipedia at least sounded like Britannica, and not some nutter's blog site.
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Russian Mafia is probably still involved.
They have access to resource that can extract the best benefit out of the current financial markets - brains (and the right sort of brains).
An exchange can be viewed as a game theory problem with multiple competing players. Most players in it at present use specific types of algorithms. Specifically, the majority of realtime primadonnas driving Mazerattis use mostly statistical and pseudo-statistical (Bayes + neural net) algorithms that predict stock behaviour based on past performance. Russians have done quite a bit of work in the past analysing the overall game problem where players use this type of algorithms. During the cold war USA/NATO went in the NN/Bayes direction for their AA, fire control and missile guidance as these were easy to implement in a "number cruncher". Instead of blindly following down the same route the Russians looked at the problem from a pure mathematical perspective including on how it will behave players use stats+NN. And they got some answers for the cases they looked at (AA). Moving from there to stock market problems is an obvious step (and mathematically it is not a particularly big one).
Players armed with this class of algorithms have clear advantage over the other traders. This advantage also increases as the market goes more and more unstable due to game theory providing better odds compared to Bayes/NN.
So considering who has the best access to the people who once upon a time researched this class of problems, I will not be surprised if the so called Russian Mafia is deeply involved in this.
I absolutely agree on the exposure of the Orwellian machinations of the Wonkypedia.
However as far as short selling goes I still think Byrnes position is fairly dodgy. Naked shorting only works on a f**ked company. It certainly hastens the decline of a failing company and
this is good or bad depending on your idealogical viewpoint.
No one can make any money naked shorting a healthy company!
Put options are a different matter. Its up to the companies management to offer and sell these.
Bear Stearns offered put options for sale as part of an enromous bluff to pretend the company was healthier than it was, when the bluff was called they had to pay up, depleting the operation of ready cash it desperately needed.
The US in particular has a vast number of protetions and subsidies which protect corporations at the expense of thier customers, tax payers and even shareholders.
e.g. Chapter 13 bankruptcy -- where a large badly run company can survive at the expense of it smaller and probably well run suppliers. Banning short selling would only add to the number of corporate welfare measures already in place.
Patrick Byrne is like Cassandra who was cursed to be able to see the future, but have no one believe her.
All I know is that I have only 5 years to go before I start drawing my pension, and I just hope there's something left in the fund by then, and it's not all pissed up against a wall by a City wide-boy.
I can't see how naked shorting, which basically amounts to the creation of phony shares, is different from playing a term market, which amounts to create funny money. On the one hand, you forge money you don't have - yet - , on the other hand you create shares you don't own -yet -.
How comes everybody and his neighbour (save a few commies desperately clutching to their vintage Marx's opus in the XXth party officially approved edition) is A-OK with term markets and suddenly frowns at naked shorting ? Since when has forging money become somewhat more "moraly acceptable" than creating virtual shares ?
Bill Gates, for obvious reasons.
Instinct says we shouldnt bail out this mess. Self interest says we should. Its us who will suffer.
What I dont understand is why we cant bail out the markets, subject to some conditions.
1>. The people at the top of these companies need to be held accountable. They must walk away from the mess as penniless as their customers.
2>. The people at the top of these companies must never, ever work in a position of responsibility again. Im not sure Id even like them handling cash in McDonalds.
3>. Im not sure i'mm qualified to comment on short selling, but nake short selling seems mad. How can anyone be allowed to bet someone elses money selling something they dont have and cant borrow. Its worse than heroin junkies at the pawn shop.
4>. ALL bank deposits must be guaranteed. I dont care how you arrange it. IT IS NOT THE BANKS MONEY. By depositing in an account, YOU agree to LEND the bank YOUR MONEY at an agreed rate. THEY MUST guarantee to give it back.
5>. Fat cat bonusses. What a pile of crap. Hold them in covenant for an entire economic cycle. If they really perform they will still get their bonusses. If not, then get stuffed.
6>. Finally, the markets probably have enough regulation. As with the rest of the country though, its useless without enforcement.
The really crazy thing is that, while I've no doubt that the shenanigans detailed went on, the original claim that there's something wrong with shorting stocks (whether nakedly or not) is wrong in itself.
You're allowed to buy stocks on margin so why shouldn't you be able to sell them on margin, that's all that shorting is.
A very recent example, HBOS and Lloyd's. Everyone was worried that, because the HBOS price was so far below the Lloyd's offer, that the deal wouldn't go through. Panic in the markets.
The traditional response to this situation, a large price difference between an offer for a company's shares and the market price of those shares is as follows. Buy HBOS shares and go short Lloyd's. This locks in that profit. But as you can't short financials in London at the moment you can't make that trade.
Which is a pity, because if those speculators were making that trade then HBOS shares would rise, Lloyd's would fall, thus there's more chance that the deal will in fact go through.
Blaming short selling for all sorts of things is really only done by those who don't understand why people might go short. Another example...banning short selling of financials has closed the convertible bond market to financial companies. Really not what we want at the time that we want all those financials to be raising more capital.
Ok, so bail out the situation to avert further chaos - that's what governments are supposed to do - but then GO AFTER THE GUYS THAT CAUSED IT AND GET THE MONEY BACK (and then stick them in jail).
So, naked short selling is not allowed, but hasn't been enforced... aren't there records of those deals?
Paris, coz she probably knows more about it than me. I admit it. But it amazes me that this situation seems to implicate crimes and malpractice in abundence but noone is talking about plans to go get the money back from those dodgey dealers.
It seems that the bible is right; A prophet is not without honour, save in his own country. This entire episode exemplifies this perfectly and shows the American nightmare, as it certainly is no dream, for what it is. Totally amoral and unfit to be places within civilised society. I have to ask "what kudos did theose who suppressed it get?"
The scary thing is that this confirms that Patrick Byrne was right on two counts - that naked short selling shouldnt be legal, and that he was being silenced by his critics (the account of the Wall Street Journal not publishing his piece is particularly revealing).
Personally, I think the second revelation is the scarier one. Everyone knows that crime in general, including fraud, happens and will continue to happen. But when those who are guilty of it, know they are doing wrong, and are able to silence critics..... Thats when things get a little scary.
This is, I fear, the problem with capitalism. Although Adam Smith's invisible hand works in an ideal market, in reality, everyone is motivated by greed, and thus will do whatever they can to get money, and that includes illegal activity. I dont know people are surprised when individuals, including those work for corporations, act illegally, and then say less regulation is needed. Its exactly what I would expect from greedy humans.
you guys need to look deeper into this.
First, legal shorting is leal - naked shorting is not. That is the law. If naked shorting does not harm companies, why would such an alliance of the financial press attack the messenger. Wouldn't it be easier to just leave him alone. weiss risks his career and his reputation on this. Would you do that on nothing?
They were paid in shares - most of them borrowed against the value of those shares. Most of them are now bankrupt. I heard someone from Meryl Lynch saying this. $50m dollars worth of nothing built up over 20 years of effort.
They have lost as much as anybody, if not more. I suspect a canny/cynical few are still doing alright because they diversified, but they won't have anywhere near what everyone thinks they do.
I don't have a lot of sympathy for them, but you need to get it into perspective. They are probably as pissed off with the casino mentality as everyone else.
"Naked shorting only works on a f**ked company. It certainly hastens the decline of a failing company"
Naked shorting is nothing shot of fraud.
The way stock markets work now bears absolutely no relation to the 'health or wealth' of a company, by which I mean its assets and cash balances.
Share prices are dictated by what anal ists think it is worth and trade on that valuation. If they want to ruin a perfectly healthy company, they can and do.
A more realistic way to value any company would be on its tangible assets and cash, anything else is just hot air and a means for the rip-off speculators to make as much money as they can at our (the general public) expense.
Maybe purposefully, you can play the sockpuppet game on El Reg as easily as on Wikipedia.
Those missing the point should catch up with current affairs. For instance the UK has made it illegal to put shorts on a company that's had a run on its shares. But maybe because you live in the US you are unaware of this.
Tim Worstall does, but again trots out the line that naked shorting seems to be OK.
"the original claim that there's something wrong with shorting stocks (whether nakedly or not) is wrong in itself."
It's fucking not Tim.
The crooks most responsible for the mess won't go to jail because they currently chair the committees that would investigate the Wall Street tycoons.
As for the legality of naked short selling, it depends on who you ask and what day of the month it is. Right now the 'not legal' crowd seem to have the controls. Short selling, whether naked or not, has a place in the market, the caveat being that the operations need to be transparent. And what is obvious about the rukus over naked short selling, is that it was NOT transparent.
NSS was a tremor that brought down an economy riding unrealistic consumer credit and hiding a mountain of bad debt. Deriviative and securitisation markets provide effective instruments for tranferring risk - that's a good thing we need to have (e.g. from insurance to mortgages) otherwise we're back to Dickensian times of living hand-to-mouth except for the born rich - and aggregated in the markets.
However, the complexity of the interactions that evolved made it impossible to navigate or understand. We all sensed it was bad. How do you fix consumer credit bubbles, housing bubbles? Well this bubble covered the planet, and it just popped.
A wise man told me it this way: Alan Greenspan's chickens have come home to roost. Yeah, haven't heard much from him for a while...
I think, to us laymen it works a bit like this
person a: buys share from entity b:
entity b: your shares are on their way. Thanks for the cash.
Share price drops, entity b buys shares and gives them to person a:
Now I think the premise with naked shorting is that
person a: buys share from entity b:
entity b: goes great here are your shares
market: share crashes
person a: holy poop here buy these shares back from me, entity b: buys the non existent share back for less then they sold it.
Now as I said, from the glancing looks I've given things thats how it looks to a laymen.
I will be the first to admit I have a very flimsy grasp on all this, but here goes anyway:
"The problems with credit default swaps and CDO's were already in play. Short sellers identified the problem and acted. If they had not, the risk portfolios would have KEPT ON GROWING and the final result would have been even worse."
Trading CDOs seems to be a prime example of Stiglitz's "asymmetric information", which is a Nobel-prize winning wasy of saying "buying pigs in pokes". I'm amazed to learn that, in addition to having no idea how to assess the risk of the CDOs, companies used "mark to market" accounting when booking them. So they book a profit based on the current market value of a completely unknown quantity, long before they actually sell (whether at a profit or loss). I thought "mark to market" went down with Enron, but apparently not.
So the only rational response to a company booking non existent profits is to revalue that company. If you want to make a profit in so doing, short sell its stock. Unfortunately, short sellers (naked or otherwise) aren't making anything except other people's money, which they squander on fast cars and overpriced fizz. If someone can indicate a tangible contribution these people make to the economy or society, do let me know.
"I will not be surprised if the so called Russian Mafia is deeply involved in this." .... By Anonymous Coward Posted Thursday 2nd October 2008 06:21 GMT
That is something, which if they are Good, you will never ever know, AC.
Algorithms based on Past [Trading] Patterns and Cycles have Absolutely No Relevance Whatsoever nor can they be Used to Usual Effect in ElectronIQ and Virtual ZerodDay Trading Systems, which is what the Markets have Now Become.
Or what you disagree?
Confused, Sam .... Posted Thursday 2nd October 2008 12:46 GMT
This link explains extraordinarily well what happens and has been happening for decades ..... http://www.businessjive.com/
Make it illegal to invest borrowed money. In fact, make it doubly illegal: make it illegal to borrow money with the intent to invest it, and hit them from both ends.
That includes "offset" accounts which combine a mortgage and savings account. If you've got money coming in, it should come off your debts first. It's not as though any savings account is ever going to pay more interest than you're paying out on your mortgage, anyway .....
This article is rubbish.
To claim that "stock manipulation schemes" resulted in the current crisis is conspiracymongering at its worst. No one can seriously dispute that the reckless policies of investment banks, combined with a shocking lack of serious regulation in the U.S., led us to the current calamity.
Moving on to the specifics, I noticed that your reporter cannily but inaccurately described a Mr. Judd Bagley as a "journalist" who wandered into blogging, but you do not say that he was in charge of public relations at Overstock.com during his "blogging" activities. Why did you conceal this from your readers?
"...If you've got money coming in, it should come off your debts first. It's not as though any savings account is ever going to pay more interest than you're paying out on your mortgage, anyway..."
Doesn't work unless you're happy not to have any holidays or a new car or a new bed until you've paid off your mortgage. Your mortgage is planned (and secured) debt, which planning should allow you some free liquid cash to at least address emergencies.
Yes, it will cost you more in the end, in interest, if you don't pay off your mortgage as quickly as possible, but if you've no liquid cash at all, you'll have to borrow, unsecured, at high short term rates to cope with any other expense, and that's going to reduce your rate of paying off your mortgage even more than having a bit of cash earning paltry interest in a savings account.
Do the math. Even if you taxed their profit at 90%.... from 1.7 million of something the mystery trader didn't own, they made 270 million......... They'd still have made according to my rough and ready numbers a thumping 26.8 million...... Lose their shirt ? We need to see your wardrobe old man.
IIRC, borrowing money when there's a safety net is frowned on by the banks, who regard it as a 'moral hazard'. I haven't heard that term much lately, now the boot is on the other foot...
Full marks to Byrne, though. Being silenced just proves he was right. So much for the Land of the Free!
Naked shorts are about taking a bet, and they usually don't come off. If the risk is too high the bet won't be made.
As an enhancement the tax could be returned to the company involved in the short so in the example if the punter made 26.8m, the company would receive a cash injection of 243.2 million.
Get rid of the ability to issue a stock IOU... If the seller can't transfer the share to the purchaser, then the seller has to refund the money... Better still, hold the money in escrow until the buyer has received the real shares.
If the dodgy traders can't issue stock IOU's instead of real stock, then they can't perform a naked short...
It's just a tool to buy and sell stock. The current market failiure is not due to shortselling (although this would greatly simplify the blame game), but due to lax rules on capitalization. The banks learned to build trillion-dollar businesses with negligible capital assets. Now they have to deflate those businesses back to something resembling a gross national product and any rounding error can kill them.
Understand now why someone might get nervous in this market?
Understand why someone with better nerves might see an opportunity for shortselling?
In this respect, the 700 b$ bailout plan is real smart: if the loans are off the balance sheet it'll deflate the whole balloon and it'll be easier to see what's underneath.
The politicians and financiers have been involved in looking after each other, and to hell with the rest of us, since the dawn of time.
Show me another sector that can swing from excessive profits to excessive losses and then go to the government for a huge bailout, confident that they'll get it.
Once out of office the politicians will sit on the boards of the finance companies that they bailed out with OUR money, making themselves rich in the process.
Banks that can't be trusted with money - wtf!?!?!?!
While I agree that abusive naked short selling should be banned, short selling itself shouldn't be. If you ban short selling, then the only bet you can make in the stock market is that it will rise. You would never be able to bet that it drops. Selling short is a critical part of the stock market.
A coin with one side is no coin at all.
"...only bet you can make in the stock market is that it will rise. You would never be able to bet that it drops. "
If I went to a bookie and tried to bet that a horse would lose, would he take the bet? NO WAY. These wankers are betting on people losing their savings and pensions. How is that any way moral? The London City brokers got their £1/2m ($1m) bonuses in cash, not shares - they are already whinging that they won't get a bonus next year, as if we should sympathise. That money came from somewhere, not thin air, and that is our savings. Wealth is like energy; it can be generated, (by industry, not the stock market) converted to other forms(spent, invested) and wasted, but not destroyed. We are now seeing a form of entropy - the ultimate state of chaos.
It could be we are seeing the collapse of capitalism, as we saw the collapse of Soviet communism a few years ago.
It will be interesting to see what happens when America's creditors call in the trillion dollars that America owes to the world. (Euphemistically called the Balance of payment deficit) and cash in all their dollar holdings.
I, for one, welcome our new Chinese overlords.
Quote: 'This article is rubbish'.
Interesting. Supremely easy comment to make.
Quote: '...conspiracymongering at its worst. No one can seriously dispute that the reckless policies of investment banks, combined with a shocking lack of serious regulation in the U.S...'
So, not an environment for actual, real conspiracies to thrive, then?
Quote: '...you do not say that he was in charge of public relations at Overstock.com during his "blogging" activities, Why did you conceal this from your readers?'
Conceal? What do you take the readership of El Reg to be, dude? We are all thick as pigshit? Is that your point? Is that all?
@A J Stiles
"Make it illegal to invest borrowed money. In fact, make it doubly illegal: make it illegal to borrow money with the intent to invest it, and hit them from both ends."
So banks should be illegal? Isn't that exacly what the function of a bank or building society is? Maybe I'm missing something...
.....But with naked shorting, you don't need a position of strength. It's nothing less than fronting king, high in poker when you hold nothing. There is the risk of it all going south, but hey ! you have bugger all anyway. In conjunction with a co-ordinated whispering campaign naked shorting is a recipe for those with the right connections to destroy the economy whilst growing rich themselves. It has to go. It's essentially some random joe flogging your house out from under you.
The real problem with short-selling is not just that you don't have the shares, but that the shares you're "selling" <i>don't even have to EXIST!</i> I could say that I'm selling a million billion shares of Microsoft, and people would buy them; and the price would go down, in fact, because if there's a million billion shares for sale then why not hold out for the lowest price you can get? So even though I never actually bought a million billion shares--or even signed agreements to buy them later--I can get money for selling "Microsoft stock".
Of course, at the end of the day, I've got to make good on those sales--I've got to actually hand people Microsoft stock. Unless, of course, I've bought back the stock that I "sold" them; that cancels the deal (except that I get to keep the money I made, of course!)
But what happens if they won't sell me back the stock? Don't I have to pay a lot of money to go buy stock immediately and give it to them? Ha, ha--nope. I'm allowed to give them a piece of paper that says, basically, "as soon as I get some of this stock I will give it to you, cross my heart and hope to die, pinky swear."
This is why naked shorting is such a problem. Not only can I get money for selling nonexistent stock, I don't even have to pay a penalty if I get caught doing it! And the more nonexistent stock I sell, the lower the share price goes--which makes fund managers decide that the company is getting weaker and weaker, because (as we all know) the market is always right about that sort of thing.
You analogy of betting for short selling is not a good one. You can back a horse to lose and you can do it at betfair.com.
Because betfair matches punters who want to bet you can take the losing position in that bet.
I want to bet £50 on a horse to win, betfair allows someone else to take the losing position on that bet. A traditional bookies would normally take that position.
This has of course caused a lot more cheating at the tracks as it's easier to engineer a horse to lose than it is to make sure a horse wins.
Michael said: "While I agree that abusive naked short selling should be banned, short selling itself shouldn't be. If you ban short selling, then the only bet you can make in the stock market is that it will rise. You would never be able to bet that it drops. Selling short is a critical part of the stock market.
"A coin with one side is no coin at all."
First, you have assumed that the stock market *should* exist mainly as a speculative market with money to be made directly from it. That skewed view has led us directly to all the stock market crashes, and needs to be revised, worldwide.
Second, you've neglected that the opposite side of the coin, when you are only allowed to bet on success (heads), is failure (tails). To extend the coin toss analogy, allowing short selling as well as investing for stock price rise will permit bets on either heads or tails (or both), whereas without short selling, everyone has to choose heads (up) on every coin toss (share) they bet on.
Shares, especially in banks, are nowadays entirely fictional notions. Did HBOS suddenly lose control of all the mortgages and deposits they had between one day and the next? No. So why did their value drop to the point where Lloydstsb could afford them? Because of some future notion that they might? Or because they might not make quite so much money as other institutions/instruments in the future, because the "market" decided.
The stock market is a big fat lie and needs global revision.
Short Selling is simply selling something you don't own in the hope that the price will go down by the time you have to settle. More than that, you can (illegally) spread false rumours to help the price go down to ensure you get a profit. There is plenty of evidence that the latter has been widespread but pinning it on anyone is difficult (especially if the regulators can't be bothered to look).
The original point of stock markets was to enable companies to raise capital and to provide investors with a sensible route to invest. Short selling (naked or otherwise) simply rapes this system of cash to the detriment of the companies and investors concerned. You can't blame the traders - they are supposed to do whatever is legal to make money for their employers and their clients. Short selling should be banned outright an the regulatoirs should d o more to stamp out the illeagl rumour mongering that has been used to artificially manipulate prices.
In the US, a short seller's broker is obliged to do a "locate for the stock to be borrowed", i.e. go to a company that acts as an agent for owners of stock to lends stocks (typically they borrow from large holders like pension funds). They are not allowed to execute the trade unless the locate has been performed.
The noise the SEC has been making is really more about better enforcing existing rules and of course the recent short sales ban.
... need prison time. From those who did it, to those who covered it up.
Not "jail" time. Not Club Fed.
Lots of concrete and bars - "bad idea to reach for the soap" - "this sucks and I'll never do it again" kind of prison.
Oh, and take all their stuff. Use it as a down payment on the huge bailout. They should not have millions of dollars waiting for them when they get out.
That will send a message. Of course, the ones who would make that happen are the very politicians who are bought and paid for by the guilty, so it'll never happen.
With appropriate safeguards - like actually enforcing the ban on naked shorting (short selling without the intention (fraud) or ability (negligence) to return the borrowed stock) - it helps a rational market price stocks more efficiently, preventing the sort of speculation bubble we've seen in the housing market. Without the ability to make money from short positions, there is no reason beyond schadenfreude for anyone to point out that the emperor might be paying over the odds for his new suit.
The problems at the moment include blatant market manipulation, naked short selling, and the fact that the markets aren't actually rational at all. The fractional reserve banking system - which inherently means there is many times more debt than assets - contributes to the difficulties by providing positive feedback.
But short selling itself is a useful tool, providing negative feedback which - as any control engineers know - makes the system *more* stable. Bring on short selling of houses!
Perhaps it’s worth noting that in 2007, the top 50 managers of hedge funds earned a total of $29 billion (see Bloomberg link below). John Paulson (no relation to Treasury Secretary) the former Bear Stearns Cos. managing director who founded New York- based Paulson & Co. in 1994, was paid an estimated $3.7 billion, the most, according to Institutional Investor's Alpha Magazine. That’s an average compensation package of $600,000,000 (sic) per manager.
Did American regulators or any member of the U.S. Congress really believe you can make that kind of money through hard work or was it more likely a result of working the system…with games like naked short selling, credit default swaps and baskets of toxic derivatives?
Looking closely at the faces of U.S. elected officials & federal overseers now that the unseemly Wall Street bailout has cascaded upon them it is odd that the only outrage is a rather lame questioning: “Was someone asleep at the switch?” Even the SEC’s muzzled Seeing Eye Dogs know the correct answer was “Not exactly… the switch has been turned off.” The U.S. Congress, of course, made sure it was turned off or they would have turned it on if it was in their best interests to do so. But even with the ‘switch off,’ Wall Street kept complaining about the regulation that it had to suffer ((little as it was) and all the while bankers and traders pulled in hundreds of millions of dollars in compensation for the splendid job they were doing.
Fast forward now to the splendid job our Congress is doing to save the financial system--- they are depending on a bailout written by an unelected financial elite to try to get us out of a disaster caused by an unelected financial elite? Should American voters be good boys and girls and just remain spectators in this charade or should they perhaps be more than seriously outraged? The trouble with crony capitalism isn't capitalism. It's the cronies. When the dust settles, it will be interesting to see how many of America’s unelected financial elite get sentenced to real jail time….
What happened to all the stuff the NRA was looking at? Or was it set to ignore anything from the big banks?
Any hope that the dicked White House emails will turn up and turn out to have something to do with all this crock? Got anybody not working on it, or is it too early to ask?
This guy is obsessed. Naked shorting by itself it is a simple self correcting technique - you would have to be the Sultan of Brunei * 100 to use it in the way that Byrne suggests.
Byrne is another financial numpty who wants everyone to believe that the market is oh so complex you need specially trained people to interpret it for you when in fact your granny has more understanding of how it all works than Byrne and all the other financial gurus put together.
Of course there is another reason self-appointed financial gurus want to pretend its all very complicated - so that they can steal your money.
The current crisis is down to the same basic cause as 1929 and all that - credit without the proper degree of supporting substance - and it will happen every single time the real asset base is over-leveraged - read Adam Smith properly and you will see it all in there so this isn't new.
Credit based growth is and always will be a self-destructive path. Default rate (a cost of business) goes up as the overall return on credit (the income from your business) goes down (because to lend more money you have to extend into riskier territory) so you have less income to make provision for more cost. There is no art to this. There's not even any maths. It is simple logic. And as for Mr G Brown who promoted this whole mess - as my granny would have said - he hasnae got the sense he was born with.
Short selling is essential to have a market that functions well. Without it stocks will be overvalued and bubbles will be bigger leading to a bigger fallout when the bubble bursts. You could argue it is immoral but short selling is not some mystical method to alter a stocks value. Just because someone shorts a stock does not mean that the price is going to go down. The value of the stock could easily go up in which case the short seller loses money.
That element of risk is the key and that risk must be fully present. The problem with shorting is that there is in effect unlimited potential for loss since any share price can fall a maximum 100% to zero but could rise many 100s or even 1000s of percent. Because of this it is simply not possible to provide collateral to cover that kind of event.
Short selling has the following structure:
Buyer A >> Broker >> Short Seller >> Buyer B
Stopping naked short selling protects Buyer B since he gets his stock for the price agreed be it low or high. There is still a risk that a stocks price increase means that the short seller cannot afford to buy it back and give it to the broker, but the broker has the original collateral and besides which goes into the transaction with his eyes wide open and thus can judge the risk to himself on its own merits and the profit to be made on the transaction
Of course if this happens and the short seller is unable to return the borrowed stock then there is still a problem between Buyer A and the Broker since Buyer A wants his now profitable stock. There needs to be sufficient mechanism in terms of capital they hold or insurance or whatever for the broker to provide a stock to Buyer.
If the trading format is not robust it creates a real moral hazard for the short seller to effectively do a runner. This is why all naked short selling should be clamped down upon as serious fraud since they are not putting up money to be lost up front. And because of that they can fraudulently manipulate the market with minimal risk and effort.
Datacenter operator Switch Inc is being sued by investors over claims that it did not disclose key financial details when pursuing an $11 billion deal with DigitalBridge Group and IFM Investors that will see the company taken into private ownership if it goes ahead.
Two separate cases have been filed this week by shareholders Marc Waterman and Denise Redfield in the Federal Court in New York. The filings contain very similar claims that a proxy statement filed by Switch with the US Securities and Exchange Commission (SEC) in regard to the proposed deal omitted material information regarding Switch's financial projections.
Both Redfield and Waterman have asked the Federal Court to put the deal on hold, or to undo it in the event that Switch manages in the meantime to close the transaction, and to order Switch to issue a new proxy statement that sets out all the relevant material information.
A US congressional hearing on "combating tech bro culture" in the venture capital world is will take place this week, with some of the biggest names in startup funding under the spotlight.
The House Financial Services Committee's Task Force on Financial Technology is scheduled to meet on Thursday. FSC majority staff said in a memo [PDF] the hearing will focus on how VCs have failed to invest in, say, fintech companies founded by women and people of color.
We're told Sallie Krawcheck, CEO and cofounder of Ellevest; Marceau Michel, founder of Black Founders Matter; Abbey Wemimo, cofounder and co-CEO of Esusu; and Maryam Haque, executive director of Venture Forward have at least been invited to speak at the meeting.
Elon Musk still hopes to quash a 2018 settlement agreement with the SEC requiring Tesla-related tweets to be approved by a lawyer before he can post them: on Wednesday, he took his case to the US Court of Appeals after a lower court denied this request.
The Tesla CEO landed himself in hot water with the watchdog when he tweeted he was thinking of taking the company private at $420 a share, and claimed to have already secured the necessary funding (sound familiar?) In reality, however, Musk did not have the funding or approval to do so. Investors, however, took him seriously and they started buying more shares, bumping up the stock price over 10 per cent.
The SEC accused Musk of fraud, saying his tweets were false and misled the public and caused disruption in the market. Musk was sued by the US regulator; he later settled the lawsuit by agreeing to pay $40 million in penalties, step down as chairman of the automaker's board, and accepted that any tweets discussing Tesla would have to be screened from now on.
Elon Musk is prepared to terminate his takeover of Twitter, reiterating his claim that the social media biz is covering up the number of spam and fake bot accounts on the site, lawyers representing the Tesla CEO said on Monday.
Musk offered to acquire Twitter for $54.20 per share in an all-cash deal worth over $44 billion in April. Twitter's board members resisted his attempt to take the company private but eventually accepted the deal. Musk then sold $8.4 billion worth of his Tesla shares, secured another $7.14 billion from investors to try and collect the $21 billion he promised to front himself. Tesla's stock price has been falling since this saga began while Twitter shares gained and then tailed downward.
Morgan Stanley, Bank of America, Barclays, and others promised to loan the remaining $25.5 billion from via debt financing. The takeover appeared imminent as rumors swirled over how Musk wanted to make Twitter profitable and take it public again in a future IPO. But the tech billionaire got cold feet and started backing away from the deal last month, claiming it couldn't go forward unless Twitter proved fake accounts make up less than five per cent of all users – a stat Twitter claimed and Musk believes is higher.
America's financial watchdog is investigating whether Elon Musk adequately disclosed his purchase of Twitter shares last month, just as his bid to take over the social media company hangs in the balance.
A letter [PDF] from the SEC addressed to the tech billionaire said he "[did] not appear" to have filed the proper form detailing his 9.2 percent stake in Twitter "required 10 days from the date of acquisition," and asked him to provide more information. Musk's shares made him one of Twitter's largest shareholders. The letter is dated April 4, and was shared this week by the regulator.
Musk quickly moved to try and buy the whole company outright in a deal initially worth over $44 billion. Musk sold a chunk of his shares in Tesla worth $8.4 billion and bagged another $7.14 billion from investors to help finance the $21 billion he promised to put forward for the deal. The remaining $25.5 billion bill was secured via debt financing by Morgan Stanley, Bank of America, Barclays, and others. But the takeover is not going smoothly.
Appian has been awarded more than $2 billion in damages from Pegasystems for "trade secret misappropriation."
It's an eyewatering sum, and came in a verdict received from a jury in the Circuit Court for Fairfax County, Virginia following a seven-week trial.
Appian is all about building apps and workflows rapidly with its low-code platform. The Pega platform is similarly concerned with speedy software building with a low-code approach. However, it appears that one party was a bit too interested in the other, resulting in a violation of the Virginia Computer Crimes Act and a misappropriation of Appian's trade secrets.
More Chinese tech companies including Tencent, JD.com, and China Mobile face delisting by the US Securities and Exchange Commission (SEC) thanks to opaque disclosures.
Tencent-affiliated gaming outfits Huya and Douyu, internet datacenter services provider Vnet Group, and online game services provider NetEase were among more than 80 fresh additions to a provisional list of companies on May 4.
The grouping is presented as part of the Holding Foreign Companies Accountable Act (HFCAA). The act requires some companies that issue securities in the US to allow local auditors to understand how many of its shares are owned by governments, whether governments exercise control over the company, and whether any officials or regulations are connected to the Chinese Communist Party.
Chinese ride-hailing company Didi Global is under a Securities and Exchange Commission (SEC) investigation regarding its $4.4 billion June 2021 initial public offering (IPO) in the United States.
Details of the investigation were revealed in the company’s annual SEC filings on Monday. The document showed Didi Global had been named as a defendant in several putative securities class action cases in both federal and New York state courts. The alleged offense was material misstatements and omissions in IPO-related registration statements and prospectus that were in violation of various laws.
Didi Global has asked for a stay in state court action pending the outcome of a dismissal motion in federal court that is still pending. Both actions are in preliminary stages, said the company, which also intends to "vigorously defend [itself] against these claims."
The US Securities and Exchange Commission intends to fill an additional 20 positions in a special unit that polices cryptocurrency fraud and other cybercrimes.
This brings the newly renamed Crypto Assets and Cyber Unit's total to 50 roles as the SEC hopes to crack down on miscreants trying to profit from growing interest in digital assets and marketplaces.
"As more investors access the crypto markets, it is increasingly important to dedicate more resources to protecting them," SEC Chair Gary Gensler said in a canned statement. "By nearly doubling the size of this key unit, the SEC will be better equipped to police wrongdoing in the crypto markets while continuing to identify disclosure and controls issues with respect to cybersecurity."
Activision Blizzard is under investigation for possible insider trading including claims CEO Bobby Kotick tipped off some investors to buy more shares before the $68.7bn Microsoft acquisition deal was announced.
The American games maker, known for top series such as World of Warcraft and Call of Duty, said it was cooperating with the Securities Exchange Commission and the Department of Justice, according to a securities filing.
"Activision Blizzard received a voluntary request for information from the SEC and a grand jury subpoena from the DOJ, both of which appear to relate to their respective investigations into trading by third parties – including persons known to Activision Blizzard's CEO – in securities prior to the announcement of the proposed transaction," the company stated on Friday in an 8-K submission.
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