While pandering politicians and milquetoast media gush and flush over steroids, dogfights and other drivel dujour, there are people out there stealing trillions of OUR very own real money– and being allowed, if not enabled to get away with it because those legally responsible for protecting the investing public and enforcing the laws on the books– do just the opposite; with no one, including most of y’all, doing much of anything to hold anybody accountable. Où est le Quatrième Pouvoir?
It wasn’t just the Inspector Generals at State and the EPA who resigned with plenty to be ashamed of. But when the SEC’s longtime IG ignominiously flew the coop after a major coverup and years of looking the other way, for you guys, it was a non-event. How come?
Various sections of the US Securities & Exchange Acts expressly oblige the SEC to refrain from and prohibit any acts that harm the investing public — yet they have regularly, consistently, almost addictively ignored the statutes’ mandate– to instead permit and thereby encourage explicitly proscribed conduct that unfairly and illegally steals from the public to enrich hedge funds, investment banks, broker-wheeler-dealers and other market insiders– all to the extreme prejudice of the investing public and the global credibility of US capital markets.
Contrary to the odious blather of SEC Chairman Cox, our markets are not “the gold standard of integrity”– but of fraud and deceit.
If they can raise capital elsewhere (and they can), European and Asian companies avoid US exchanges not because our reporting requirements are too stringent, but because they know our securities markets are murky cesspools of manipulation and malfeasance, and want no part of them (no matter how much Senator Chucky spins-for-his-supper to the contrary).
Do you all just accept that the US stock markets are thorougly corrupt– and you’re just not allowed to talk about it– except under cover of spineless adolescent epithets like mischief, hijinx, and shenanigans? Why are those words always used to chide billion dollar Wall Street criminality– but never the common thief who steals far less?
And how come former SEC chairman Harvey Pitt’s recently pronounced Ten Requirements For a Level Playing Field,* a pragmatic blueprint for real market reform, was, for most of you, another non-event? As if it had never happened. The former head man speaks the truth about the markets, and how to fix them– but it’s of no interest to you? Duh?
Don’t you all have pension funds/investments of your own? A trust fund, or something tucked away for your old age or your family’s security?
So what about it, Lou Dobbs? You know the market down and dirty. Does it commit more or less egregious crimes than the lettuce pickers? Why not vent your righteous wrath on the big bucks being cherrypicked by the un-policed counterfeiting and trading of phantom shares, entitlements, and off balance sheet “swaps,”*** mere ghosts of the legal securities they kidnapped and “dematerialized” ** to hide the ugly truth from the unwitting, chronically uninformed, misinformed lambs of the investing public.
Come on, Paul Krugman, you’re a trained economist and an astute political observer. What you write about lack of foresight and oversight from the Fed applies no less to the crime-blind, investor-betraying SEC. How can you possibly not know this? Like your ever-equivocating quipster colleague Ben Stein, you’ve probably got some hedge fund pals too, but are you really unaware of Wall Street’s intentionally opaque, sinisterly skewed playing field and the grievous injury it perpetrates on the tens of millions of American investors former SEC honcho Arthur Levitt described as “the most undersupported and underrepresented constituency in the country”?
And you, Gretchen. I know you know the score– and that the SEC’s failure to protect the public arises not from computer shortages– but from gross ethical deficiencies– from the top down! Just which editor is it at “all the news that’s fit to print” who tells you if the shoe fits Wall Street– it’s too tight for the NY Times? Is that why neither you nor any of your brethren have sifted the cover story to enquire as to how the Milberg Weiss firm just happened to have plaintiffs handy to sue certain companies just after certain hedge funds had established huge short positions therein?
Don’t you all know enough already about the massive lies and manipulation that occur daily in the markets to at least wonder whether you actually own what your monthly brokerage statements say you own?
And what about that $192 billion in undelivered securities– on the NY Stock exchange alone? Shares people bought and paid for in good faith, but somehow never received– even though the sellers got paid and the brokers on both side of the transaction got paid… It’s likely that $192 billion is but a fraction of the real figure which could be ten or twenty times greater if you factor in offshore and off the books transactions.
Keith Olberman– you deserve a medal for your outspoken courage and integrity, but if ever your on-the-nose, call-a-spade-a-spade indignation was needed, it is here and now regarding the wild west, oversight-free, government-abetted, institutionalized corruption of our capital markets that sacrifices companies, lives, and highly desirable medical and technological advances to the unchecked greed of free-roaming market predators with “juice” (as a senior SEC officer recently called it).
How can you all be so sure none of those phantom undelivered shares are in your own accounts– represented only by the IOUs of your trusty broker– rather than the actual shares and bundle of stock ownership rights you thought you bought, including voting rights and the right to receive a real dividend taxable at only %15– rather than a broker’s pseudo-dividend “payment in lieu of dividend,” taxed at much higher ordinary income rates? Better check that tiny print in your brokerage agreement.
For those not already o & o, or should I say “captured” by the $ecurities industry– how can you just ignore reality? Or are you indeed, forbidden to think or write the truth? If so, it’s very sad, because one of these days, the truth will out– at least on this subject. Thanks to the internet and the dedicated efforts of market reform advocates like Byrne, OBrien, Patch and others, too many people already know! The secret is out! And the roster of shareholder and company victims is expanding exponentially– along with their outrage and disgust at the pompous pretense of law enforcement and integrity; a sanctimonious hypocrisy that punishes a Martha Stewart and the occasional teenage tout– but gives a virtual free pass to professional Wall St. thieves who steal with impunity in a zero sum game they have rigged, to near perfection.
We no longer have to wait for Steps 8 (Restrict the Press) and 10 (Subvert The Rule of Law) of Naomi Wolf’s prescient End of America warning. Regrettably, they are already upon us. And where are you, once noble knights of the Fourth Estate?
R. M. Rosenthal
*Former SEC chairman Harvey Pitt’s Ten Requirements For a Level Playing Field:
“First, SROs and the SEC need actively to pursue ongoing chronic and serial short selling infractions.
Next. Meaningful penalties have to be imposed for violations of existing Reg SHO requirements.
Third, the SEC should define and punish as fraud, abusive naked short selling practices.
Next. The SEC should act quickly and forcefully, otherwise, state regulation is more likely. And as I’ve already said, I don’t think that’s the best way to go. Our capital markets work because they’re governed by uniform rules from Portland, Maine to Portland, Oregon. State regulation means fragmented requirements, practices, and procedures, and could cause loss of our competitive edge.
Next. The SEC should eliminate the option market maker exception. It isn’t demonstrably of any value, and it risks facilitating illegal activity.
Next. Reg SHO should impose firm locate requirements as a condition precedent to all short sales.
Next. Reg SHO should cover securities that are also traded in the pink sheets. Naked shorts occur in the shares of small, thinly traded issuers, and those are likely to trade in the pink sheets.
Next. Chronic and unjustified violations of T+3 settlement rules should be punished.
Next. Before brokers are allowed to borrow margin shares, they should make clear disclosure and give investors the opportunity to opt out.
Next. Securities lending should occur openly and transparently at arm’s-length prices, enhancing returns, increasing efficiency, promotion valid short selling, and curbing abuses.
Next. The NSCC should allow members to settle borrowing and lending activity through these facilities that I’ve just mentioned so accurate accounting and data is available to market participants and regulators.
Next. Shady activities thrive in shadowy market corners. Exchanges in other markets should be required to report the securities on daily threshold lists and aggregate daily volume of fails for each such security.
And, finally, Form 13F institutional investor reports should disclose both short and long positions. That would provide issuers and investors with a better understanding of trading activity.”
Starting in 2008, the exchanges and broker-dealer owned and controlled DTCC are requiring companies to make all their outstanding shares eligible for DRS (Direct Registration System), otherwise known as the “dematerialization” of stock certificates. If they succeed in this scurrilous scheme, it will mean the elimination of all paper stock certificates and any way of EVER reconciling the actual number of real shares extant in the clearance and settlement systems. Just like attempts to eliminate paper ballots and any paper trail via electronic voting machines, the elimination of stock certs would enable the criminals to eradicate the only existing physical evidence of their wrongdoing. No oversight. Just trust us.
Re: Lenin: Repeat A Lie Often Enough….
By wiki on 12/9/2007 9:25 PM
– swaps to simulate a call off balance sheet.
“The first swaps were commonly used as a way to hedge exposure to market risk for a low fee. For instance, if a trader decides to short sell a stock, there is considerable “market risk” if the stock price rises. In order to hedge that risk, the trader could enter a swap agreement for the same stock, paying a small fee to “hold” it while not actually having to pay for the stock itself. In this case if the stock price does rise, they simply end the swap and use the stock to pay off the short. In effect, they are buying insurance against their position. Known as total return swaps, in these contracts all cash flows, dividend payments for instance, are payed or received by the holder as if they owned the stock directly. Yet for accounting purposes they are off-balance sheet and do not appear as an asset (they do not legally own the stock in question).”
Re: Lenin: Repeat A Lie Often Enough….
By wiki on 12/9/2007 9:26 PM
This swap thing could be REALLY important.
As I understand it:
Let’s say Mr. Short has attacked a victim company and is short $10 million worth of that company’s stock. He is at great risk if the stock goes up, so he does a deal with the prime brokerage. He explains to them that he is going to continue to short the sh_t out of the victim company, so it likely won’t go up, but he enters into this deal.
He agrees to pay the prime brokerage the 5% interest on $10 million if they agree to pay him any capital gains and dividends on $10 million worth of the victim shares.
He hasn’t put up a dime for this agreement. At 5%, he pays $42,000 per month to in effect insure his short position. He pays them interest on money that doesn’t exist and they agree to pay him the upside on shares that don’t exist. Because the SEC has said a long contract is the same as owning the shares, he isn’t technically short. His long contract cancels out his short position, so he doesn’t need to borrow real shares.
He shorts 40 million shares of victim co. at $25
He needs to put up 102% of the net value, but he has the proceeds from the sale, so he has to put up 2% or $200,000 as collateral.
A) Outcome A, stock down 20%: He’s bet well and the stock has gone down to $20 six months later. He’s only tied up $200,000 of his own money + ($42,000 x 6). He buys back in at $20, for 8 million and the prime brokerage gives him back his $200,000 collateral.
He makes $10 million – $8 million – $252,000 in swap fees or $1,748,000. I’ll say it again, on risking $200,000 in collateral and promising to pay $42,000 per month, he has made almost $2 million.
B) Outcome B, stock running like stink and is up 100% to $50. No problem, he just collapses the swap. His profit on the swap is exactly equal to his loss on his short position.
He gets back his collateral, so that doesn’t matter. His loss is only 6 x $42,000 or $252,000.
C) Outcome C, stock goes to zero. He makes $10,000,000 – $252,000 or $9,748,000
Both sides can’t lose. The prime brokerages don’t care as they’ve agreed amongst themselves to just net to create infinite numbers of claims on real shares. They know they can’t ever be bought in and they make fees on every transaction they do with their hedge fund customers. Most of the time it will go down and they get paid interest on money that doesn’t exist. They also keep the interest on the 102% cash while it is being held as collateral and the profits will likely continue to sit in their coffers for the next deal.
The hedge funds can manipulate stocks down without any fear of a squeeze. The worst that can happen to them is they lose their interest payments for the time they were short.
The contract is off balance sheet and not taxable to either party as no one bought anything and there is no capital gains. It’s only a swap of cash flows that nets to nothing.
Imagine if you are the SAC Capital sized hedge fund manager. For the cost of the interest payment, you can balloon your assets by 50 times, then collect your three percent management fee, EVEN IF YOU LOSE.
What I’ve described is an equity swap, but they do it for interest rates, currencies, etc., putting the whole world financial system at risk. No wonder they are afraid to buy anyone in.
“The five generic types of swaps, in order of their quantitative importance, are: interest rate swaps, currency swaps, credit swaps, commodity swaps and equity swaps.
The Bank for International Settlements (BIS) publishes statistics on the notional amounts outstanding in the OTC Derivatives market. At the end of 2006, this was USD 415.2 trillion (that is, more than 8.5 times the 2006 gross world product).”
The reason they are called “OTC derivatives” is these agreements trade over the counter similar to the way options trade and the cash flows are tied to the percentage change in the underlying asset.