The SEC Comes Up Short

from article: The real problem at the SEC is its mysterious decision to remove the uptick rule in July 2007, just as the crisis in the financials was about to explode. Gee indeed, wonder why ? There exists a book in and of itself on that subject Boy oh Boy - imagine someone who knew how to play shorting with no uptick I bet there are some recently made wealthy folks out there in the last year. Now ... Me ? And I bet this Muriel Siebert too - would say to someone reaping a fortune from shorting ? or naked shorting ? or exloiting commodities ? hey - is that real work ? is that labor contributive to ones community ? I suppose it depends if you spend the money on a porsche or a new business that creates jobs ?

Isn't naked shorting fraud? I say I'm selling you something, but I'm selling you nothing. You give me money, and I give you squat. i.e. I am using your money for free. And it generates trading statistics that aren't really trades, affecting the stock price in the direction helpful to my shorting. That seems to be market manipulation. So the difference between naked shorting a stock and buying out of the money puts is that one directly influences the price of the stock to my benefit, while the other doesn't. Incidentally, it would only be right that with covered shorting, the owner of the shares, not the broker, gets the rent for their borrowing. If they don't, that too is criminal, as the broker is using your property to do you economic harm. You have a long position, so you want the stock to go up, but the broker is renting your property to generate sales in the market, making money from your asset by lowering the price of the stock, directly contrary to your interests.

Harry is correct about Greedom.. Greedom has found a blog here that will let him post as often as he likes whether or not he has taken his meds.. And, most of those posts are not interesting to anyone but Greedom, as evidenced by the lack of feedback..

I agree wholeheartedly with Cyberman. How nice to get a logical and honest opinion on these pages.

As a plain old tax paying, bailout underwriting citizen did try to get SEC to answer emails regarding their substantial errors (iterated in above comments) under 'leader' Cox. Talk about opaque trading platforms, Cox invented them in his black hole compartmentalized SEC. Guess I didn't have a need to know. Cox according to editorial quoted by EM above claims naked shorting does not occur with the 19. Man, he, Paulson and Bush must have nightly seances with beings which got off those UFOs on the white house lawn June 15th. For Cox's edification a seance is "...a form of mediumship in which one or more people communicate with entities on another frequency...". When in-the-know speculators found out the 19 were going to be protected from what Cox claims is not an illegal or even occurring practice, many of them shot up. (That is the stocks shot up, not the speculators - but then you never know.) If they weren't in danger from naked short selling why protect them from it? Am I getting this: These named 19 financials (but none of the others) need protection from a practice that is not occurring because stockholders have lost confidence? Which frequency was that on Mr. Chairman? Oh yeah, this guy was confirmed by a congress that has a 9% approval rating and appointed by a President with maybe a fifth of the voters approving his 'service' to the country.

It will be very interesting to see where Herr Paulson ends up after he leaves the halls of unlimited printed money. Want to bet it is back to GS? Ken Kesler

Like the old cliché "Hi I am from the government and here to help." Those who desire or think micromanaging markets is a good and beneficial thing make sure you are careful what you wish for. History is full of many good intentions resulting in nasty unintended consequences.

Why doesn't FBN limit the number of posts per day? Honestly, I want to read the comments of others, but find that I have to read through Greedom's daily running commentary that must be tied to his liberal dictionary. Geez, Greedom, if you have so much to add start a blog of your own somewhere. Blogs are hosted free in a number of places.

The way I see it, Cox and Paulson are trying to protect their own. Eventually all the toxic paper will find it true value and the excrement will hit the ventilator; again.

Rereading the first part of the article ? I find: "To get on the list, the SEC chose “precisely those financial firms” that the Federal Reserve “has designated as eligible for access to its liquidity facilities, and for which the taxpayer could be on the hook,” Cox explained." end paste The list ... ouch on the hook ... double ouch I'll go ahead and shift down the credit rating for the Treasury and it's 'liquidity facilities'. Why not, on the other hand, if the world downgraded the US Dollar - oh no ! No kidding, have no seen the movie in 20 years, or or 30 ! That Race around the world movies out of the 50's - why does the pie factory scene enter my head ! Have I blown a veeeeeeeeeeeeeeeee. jk vein. Sorry, US Dollar ? downgraded ? by the world ? couldn't help laughing. Oh well - all in all - zooming out - this issue with SEC and naked shorting has been stumbling for years now as I see it, I don't grant too much focus to it right now. I like the ML news today - near 40 billion in request for - what ? you know what ? I'm guessing to keep that bottom line such that they can get out of the critical red. oh well. Will be interesting. Myself ? I just realized the scam on Wachovia - unless they have a precaution on it - $1 from your checking to your savings every purchase. Hmm... And - imagine all the NSF charges that will show by people going - why ? I forgot it was sucking out of my checking ! Just made me wonder if Wachovia was so desperate it has become true scum. WaMu and Whackovia- TYPO intended I think are near to fall - hmm - I better look at that list above.

What I meant by that regarding Monica Goodling and the SEC hiring her for THEIR hiring processae ? Is as Monica [Goodling] is analog here to X where X is the part of the SEC that would make for not - the perfect storm - the an unwritten script of the anti-thesis, the perfect sail, or 'smooth sailing', which is what we've had, or had, minding my use of 'we' there - so what if english lacks a universal first person plural! ? Oh well, fantasy. Hmm ... I wonder though in all of her travels. hmm... late 20's - has Monica ever crossed over into SEC territory in any questioning ? let's be nonsensically critical here too and ask - if not, why has she abandoned working with federal agencies pro-actively such as her dealings with the SEC. Hmm put THAAYAT way ? oh well- Monica is going to get slammed for sure on the 'Well, I didn't keep any notes'. That's unfortunate. On the other hand, she does know enough to mandate a resignation. That's a plus to get someone like Monica Goodling up to bat - hmm uh oh, I left politics forums to join financial forums and here I am. this isn't a forum though. But - oh well - and I've ended up on politics. Atleast by analagous reference, or as I'd rather say analog to. Has to be someway to Then again, sometimes there isn't. What's ML scrambling 38 billion is it ? today ? whoa ! double digits folks ! augh! watch - instead of over, we go double digits for 3 years! I mean as to the tens of billions place value - 38 Billion. lol

The SEC needs to find someone like Monica Goodling for the hiring process. Only replace 'God' with 'Spread' and replace abortion with doing whatever is necessary to win those extra afterlife bonus points to be later spent, in some fantasy world that no one has been able to prove even exists. Mike - last I checked ? Many people believe in God, and many people believe that predatory naked shorting exists. Let's flip a coin and pray ? perhaps ? it doesn't land on it's side. Mike - we're better of together than apart ! then again we ARE in deep black space, anchor unknown - last I checked, there is a big sun nearby. Howdy neighbor (Flanders voice).

Once upon a time, there was a bear who lived in the woods, and the FBI actually trusted the SEC. the end.

No where else to post it but it looks like Merrill Lynch & Co is coming up short today ! heh from press... Merrill Lynch & Co., the third- biggest US securities firm, will sell $8.5 billion of stock and liquidate $30.6 billion of bonds at a fifth of their face value to shore up credit ratings ... Wow, they're really scramblin' over there.

It's seems clear now that they will not fix the 19 companies away from the market. Market sees this the way either they are improving market rules or they are not. Looks very sad so far.

Elizabeth, Thanks for the mention in your article. To me, this SEC list pegs the weirdometer, yet not many people seem to want to talk about it, let alone the implications. Why is the SEC more concerned about the Primary Dealers (those who can deal directly with the Fed) than regional banks on the verge of collapse? The only thing I'm sure of is that the answer can't be comforting. That list might turn out to be an unintentional "tip sheet" for short sellers in the very near future. So what purpose did publishing it serve? Riddle me this. If you or I had said a week ago, "Merrill's probably going to dilute it's shareholders with a huge Private Placement" the SEC would have been on us like an Earl Scheib paint job (or so they say). Merrill said it had no plans to raise additional capital, until they did it today ($8.5B). Who's the rumor-mongerer? Aren't statements like that criminal? You can't inspire confidence in a system so obviously devoid of justice. Sorry about the rant, but hey, anybody who quotes me, probably needs better sources;)

It would be nice to have a comment on this topic from Ms. MacDonald and give us the benefit of her expertise.

Cox's actions can be compared to a man punishing the cat because the dog chewed his shoes. With the wealth of issues the SEC needs to address in the out-of-control behavior of Wall Street, naked short-selling is way down the list. But remember this, in my book, "Crazyman's Economics" I argue that the true role of an agency like the SEC is to protect the exchanges from the investors, not the opposite. Cox's actions give the appearance of doing something, which makes it all the more pathetic.

Just mandate the cover of all failure to delivers and the problem would be solved. BSC still has 16m FTDs and OSTK has been on the SHO list for 800+ days DELIVER SEC

This is the kind of muddled pandering you get when a politician is charged with running a regulatory agency. No one has ever been able to come up with enough evidence to prove that predatory naked shorting even exists. As an incidental of heavily shorting a distressed stock - sure some of those short positions will come up fail-to-deliver, but the tin hat crowd have been whining about this mysterious cadre of market makers who knowingly, intentionally, deliberately naked short in order to purposefully drive down a targeted stock. The looney fringe of the investment world lead by one of the Chief Executive Loons - Patrick Byrne of Overstock.Com - have been blaming an unidentified bogeymen "Sith Lord" naked short mastermind for several years now. According to them, the only reason overhyped poorly performing stocks decline is because the dreaded naked shorters make it so. And the SEC feeds the lunacy, offering the reputation of the SEC as part validation of a kooky conspiracy theory that no one has been able to prove exists - not even the SEC itself. So when the SEC stupidly states that it is banning a trading 'practice' for a special list of Companies, and in the same breath states that those companies have not been subject to a naked short 'attack' - the agency urinates away it's own credibility. Investor confidence? How can investors be confident in the SEC's ability to police the markets if this is the best they can offer? There are plenty of other ways for the SEC to deploy it's limited enforcement resources and at the same time instill the kind of "investor confidence" that it claims to be so concerned about. Observing the SEC chasing naked short soap bubbles around Wall Street does not give me the warm and fuzzies about the agency or their ability to to fulfill their mission.

Here is my question on naked shorting. If 10 million shares exist. And 30 million are in play due to naked shorting - and in process, those naked shorters are able to drive down the price of the company to crash ? In the morning, the company no longer exists - BUT is it true ? that if you successfully bring down a company using a pack of naked shorters ? that the problem of the extra stocks that never existed doesn't and won't matter any more ? because the company was successfully taken down ? So you see my point on free enterprise, and naked shorting being a threat there. BECAUSE - it says your company, if publicily traded - with a FIXED amount of shared out there - can come under attack of people naked shorting, or borrowing MORE shares than you even have out there for your company ? and yet ? each of those ghost shares ? STILL influence the price of the stock ? if that's true, and clear to readers, gee, almost makes you wonder - how safe is ANY company that's publicly traded. Me ? I can't think of when naked shorting would be beneficial to the company, ever. unless, sheesh, a company naked shorted itself - imagine that. It drives its own price down to then buy back stock at a better price, thus regaining more control of the company again. Wow - that's legal - and gee- what a scam ! Odd, spent some time in politics, went into economics to learn a bit - now I find questionable thinking systems in both. Perhaps I should question my own thinking that led me to politics and money for subjects to get involved in !

from comment by Ed: Comment by Ed Jul 28th, 2008 at 11:12 am Good morning. I would like some clarification of shorting. It is my impression that “naked” shorting has been against SEC rules since the 1930’s and is illegal but proper shorting on any stock $5.00 or more is not illegal. I’ve heard experts on FBN and your competition take that position but your article would seem to contradict it. The uptick rule-I’ve heard opinions on both sides. I think that the uptick rule was helpful to the market as it would not allow an avalanch of shorting of a stock but some experts say that with spreads currently at one or two cents on many stocks it is not pertinent and would not be effective. In my personal opinion I would like to see it reinstated. end comment Ed - I understand that it is legal currently. I once ran into someone that was obsessed with this subject years ago - they left me in a state of awe that this goes on, mainly because it can take down and suck the life out of a company - just like that. It's really a threat to free enterprise. I mean, hey, if you're a company - and you have 10 million shares floating ? And, doesn't matter, but maybe you hold 2 million, so 8 million are out there. One bad encounter with a pack of naked shorters and if I'm not mistaken on any given trading day - you could be put on the line 'as if' you had 20 million shares out there - as you don't need to borrow a real share, and the person that explained what they were so obsessed with shared with me that because you don't even have to have a real share to borrow, you run into people borrowing MORE stocks than exist. If I understand it right, 50 million shares can be 'used' even though only 10 million exist for this sample company here. That ALONE is problematic eh ? Heh, you know what ? this smells like the over leveraging that goes on, take Freddie and Fannie, what ? 100 billion net worth or something close to that and over 5 trillion debt ? Sheesh, I wish "I" could manage credit and debt like that in my life - sheesh I could make, let's see - it would take 10 100 billions to get 1 trillion, so 10 x 5 = 50 to 1... FIFTY TO ONE debt ratio there. I could make 50k a year, and 50 x 50k - hmm 5 x 50k = 250k so, 50 MUST be the next one over, 2.5 million. YIKES - if I lived MY life like Freddie Mac and fannie Mae - my god, if I only made 50k a yaer ? I could have 2.5 million in crapola, house, car, vacation - yikes. And here I've been saying my below 600 credit score is keeping me from credit for the better ! Yikes, I forget about reading that it is credit that ALLOWS a corporation to FLY - to SOAR - and here I've been living without credit - and Fannie Mae shows up revealing a 50 to 1 debt/real value ratio... I wonder what kind of ratio the US has on ITS debt - maybe I don't want to know. People talk about profit to earnings ratio, I often like to look at debt to real value as I call it - I'm sure there is a proper name for it. But Ed, I 'think' naked shorting allows more stocks than exist to be traded, and to my knowledge the SEC has been stalling on it for years. I bet you can make a killing with naked shorting - if only you could own some serious major media resources. Ed, imagine if you could buy the Wall Street Journal, imagine what kind of rumors you could spread and then naked short to exploit that - my god.... I suppose it would be insane if you had thousands of radio stations, newspaper and TV media resources to start a rumor - the power would be amazing, easy into billions of profits from naked shorting I wager. Now, NewsCorp does have such a backbone on media distribution capabilities to pretty much start a rumor IF it wanted, hmm... integrity is the issue there I suppose. Naked shorting + rumors = total disaster. I'm sure there have been some real dark nakes shorting episodes on wall street in the past... would be neat to write about or investigate -that's for sure.

Does anyone else have any insights to offer up on why the SEC is ONLY limiting this to 19 corporations ? perhaps the anti-thesis to naked shorting would be: Temporarily lending someone a stock you don't own ! lol seems I'd think you'd want to go full canopy on this SEC change for naked shorting. First time I learned about naked shorting was someone explaining to me why all the stock they owned in a company was no longer valuable, as virtually overnight - the company was naked shorted to death. Seems to me there needs to be a counterbalance of accountability in naked shorting. Shorting ALONE I find questionable as to whether in a zero sum game of the universe if I really come out ahead, but hey, bet up, bet down, once Wall Street opens its doors as a casino ? you have to let people bet for or against the dice. If people borrow what never existed, my understanding is that at one point, there can be 'as if' more shares are out there for a given company - further - that dilutes the value of the stock as far as I see. Until end of day - when people have to clean up the naked shorting mess like the end of a Dr. Suess The Cat in the Hat story. I wonder what 'thing 1' and 'thing 2' would be for the naked shorters out there that work in teams. Remember, teams broke vegas with blackjack out of MIT - and Ed Thorpe - the professor of mathematics at MIT who developed the technique to break blackjack - I read then moved on to study the stock market - and created the first 'hedge fund'. So, naked shorting is not unlike a team of people going into a casino - IF they are playing together. Tom picks up phone - calls Lucile - "Naked Short stock XYZ" Lucy calls up Brad - Brad calls up his team of naked shorters - in 3 hours ? stock XYZ starts to slide. In 3 days ? company XYZ is out of business. Lucy ? Brad ? Tom and the naked shorters ? even IF there WERE more stocks out there than existed ? Doesn't matter -they just call in the cat in the hat - and hey - another day of trading tomorrow. I still ask -how do the naked shorters cover themselves when they get into trouble borrowing more stock than existed.

from article: "The New York Stock Exchange has already said that the Big Board has found no evidence of widespread naked short selling." end clip Isn't it true though naked shorting doesn't necessarily have to have any records ?

from article: "BNP Paribas Securities Corp Bank of America Corp Barclays Citigroup Credit Suisse Group Daiwa Securities Group Deutsche Bank Group Allianz SE Goldman Sachs Group Inc Royal Bank ADS HSBC Holdings Plc ADS JPMorgan Chase & Co Lehman Brothers Holdings Inc Merrill Lynch & Co Inc Mizuho Financial Group Inc Morgan Stanley UBS AG Freddie Mac Fannie Mae To get on the list, the SEC chose “precisely those financial firms” that the Federal Reserve “has designated as eligible for access to its liquidity facilities, and for which the taxpayer could be on the hook,” Cox explained. " end clip Sheesh Liz MacDonald! you know ? does this mean anyone on that list ? we can presume to be in dire straights ? Or 'access to liquidity funds' doesn't necessarily mean you need it. Would be neat to see which of those companies have pulled what on the liquidity lines.