Apr 21, 2010

Naked Short Selling

In light of the charges against Goldman Sacs and the scathing review of the SEC by the Inspector General, this post is timely.  It is long, but the subject is complex and deserves some attention.

Naked Short Selling - that is quite a title isn't it?  What if I told you this illegal practice is what actually brought down the global economy?  What if I told you there is sufficient evidence that stock manipulators, hedge fund managers, and crooked brokers brought down the system for their own gain?  Its unbelievable, right?  Far fetched and conspiracy theory stuff, right?  Perhaps, but I don't think so.

There is a series of videos on You Tube produced by Deep Capture that very clearly and easily explain what Naked Short Selling is and how it brought down the market.  Why should you care?  I will tell you:

  1. No one has been prosecuted for this crime
  2. They have done it repeatedly
  3. It under minds the integrity of our financial system
  4. It is being covered up at the Treasury, the Fed, and the SEC
The videos do a great job explaining the practice and how this stuff works and they are particularly visual which helps somebody like me...  Basically, naked short selling is this:

Somebody decides they want a particular stock to fall because you can make money on a falling stock.  They issue millions of orders to sell the stock, the market is flooded with the company's stock, and the price drops.  The kicker is the originator of the sell orders DID NOT OWN said stock in the first place.

This has several ramifications:
  1. You can't sell something you don't own
  2. All of the people who bought the fake stock don't know it's fake
  3. The brokerage firm is stuck holding the bag for a bunch of stock IOU's - that is the TOXIC asset they are referring.
Think about it - if I sell my neighbors stock to six people, the price of my neighbors stock drops so much they go out of business, the six people who bought the stock technically own the shares, but since the company has gone out of business no one finds out that the stock they bought wasn't real.  The kicker is the broker is still supposed to deliver the stock certificates to the buyers and the seller is supposed to pay the broker the money for the transaction.  The broker doesn't front the seller the money it is on their books as a receivable.  The seller is a crook anyway and closes their doors and heads to the Cayman Islands.  What's left? A receivable on the broker's books they can't collect, six people who thought they bought stock they didn't and a company that was run out of business.

What if this happened over and over and over again?  What if there are billions of stock shares in people's portfolios that don't really exist?  What if when these brokerage companies and investment bankers collapse the Federal Government and the Fed are discovering this fraud and nightmare?

There are stories of Hank Paulson, the Secretary of the Treasury, and a former Goldman Sachs Executive (yep, you guessed it one of the companies holding these "Receivables" on their books) on his knees in the Oval Office in September 2008 begging lawmakers to give him 800 billion dollars to shore up the financial markets.  He'd written one piece of paper and wanted them to authorize the US Treasury to immediately disperse these funds.  Is it starting to make a little more sense?

What about Tim Geitner, the current Secretary of the Treasury, you know he was the head of the NY Federal Reserve, who better to take over for Paulson and continue the cover up.

What about Obama renominating Ben Bernake?  Of course, you have to keep him in his position, there is a huge mess being swept under the rug and the job is not yet done.

The result of these illegal practices coming to light would result in an absolute collapse in the financial markets, globally.

How did this happen?  Who is supposed to be watching all of this stuff?  That would be the SEC, you know, the ones who were supposed to regulate Bernie Madoff.  I will bet Martha Stewart is pissed.  She was put in jail for $100,000 - these crooks are walking around free and doing Rock Star Interviews for the business networks have swindled the whole world.