Documents Show How Goldman et al Engaged in 'Naked Short Selling'
1–10 of 55 posts
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#2Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example:
More damning is an email from a Goldman, Sachs hedge fund client,
who remarked that when wanting to “short an impossible name and
fully expecting not to receive it” he would then be “shocked to
learn that [Goldman’s representative] could get it for us.”
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#3Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example: More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would th…
I'm lost on the mechanics here, but doesn't this mean that any profit on the part of a short-selling customer was actually coming out of the pockets of GS?
I mean...where does the money to cover the customer's profit on a naked short come from?
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#4Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example: More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would th…
I'm lost on the mechanics here, but doesn't this mean that any profit on the part of a short-selling customer was actually coming out of the pockets of GS? I mean...where does the money to cover the customer's profit on a naked short come from?
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Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#5That naked short selling is allowed is an anachronism coupled with the lobbying of the self-interested. In the olden days, it was reasonable to give a time delay to deliver the physical paper that proved ownership. Now everything is electronic so _could_ be verified instantly. But there's a lot of money to be made by doing it and the government will covert catastrophic losses, so it should be expected that everyone does it.
Fortunately the solution is quite simple. Force short sellers to make the shares available instantly at the time of the short. They could be held in escrow by the exchange until settlement either way. Go go gadget SEC?
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#6Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example: More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would th…
I'm lost on the mechanics here, but doesn't this mean that any profit on the part of a short-selling customer was actually coming out of the pockets of GS? I mean...where does the money to cover the customer's profit on a naked short come from?
Come on, you know it was not coming out of GS pockets. It was a heads I win tales you lose situation.
Evidently there is some amount of time between when a stock transaction is booked and when it clears - like a purchase made with a check. They were essentially writing bad checks by selling stock they didn't own. If the price of the stock went down, they would actually go out and buy the stock at the new lower price. If the stock went up they would say, sorry that stock transaction "failed" - darnedest thing, just happens sometimes.
"Instead, he preferred to just sell stock he didn’t actually possess. That is what is meant by, “We want to fail them.” Trafaglia was talking about creating “fails” or “failed trades,” which is what happens when you don’t actually locate and borrow the stock within the time the law allows for trades to be settled."
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#7Article lists a bunch of interesting details, and even is very careful to make sure the term 'muppets' gets incorporated twice, but doesn't quite connect the dots and explain just exactly how the naked shorting fucked the muppets. For example: More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would th…
I'm lost on the mechanics here, but doesn't this mean that any profit on the part of a short-selling customer was actually coming out of the pockets of GS? I mean...where does the money to cover the customer's profit on a naked short come from?
No, the profit doesn't come from GS.
Say you think XYZ, currently priced at $100 is going to go down in price. You tell your broker (GS in this case) to short 1 share in the market. GS sells XYZ (someone else buys it) and you get $100 in your account while the quantity of XYZ shows up as -1. Later, the price does drop to $90. You tell GS to buy 1 share, and you pay $90 for that share.
You now have $10 in your account ($100-$90) and the quantity of XYZ in your account it zero (-1 +1).
Someone else in the market lost this money, you gained it. GS was supposed to have borrowed this 1 share from someone, but they didn't. In other words, for a short time, this 1 share was created out of this air.
If there was a system to make sure that every single transaction was backed by an actual share, then this would not have been possible. However, transactions are not actually reconciled on a real-time basis.
Someone with more knowledge of the back office will have to explain how such naked shorts can exist in books for longer than 3 days (perhaps GS was rolling over these shorts?)
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#8Earlier quoted context omitted.
I'm lost on the mechanics here, but doesn't this mean that any profit on the part of a short-selling customer was actually coming out of the pockets of GS? I mean...where does the money to cover the customer's profit on a naked short come from?
No, the profit doesn't come from GS. Say you think XYZ, currently priced at $100 is going to go down in price. You tell your broker (GS in this case) to short 1 share in the market. GS sells XYZ (someone else buys it) and you get $100 in your account while the quantity of XYZ shows up as -1. Later, the price does drop to $90. You tell GS to buy 1 share, and you pay $90 for that share. You now have $10 in your account…
But if it's a naked short, the only transactions are between me and GS.
I sell short at $100, GS gives me that $100. If there's no share behind that to sell, then they just gave me that $100 out of their own pocket, right?
So then the stock drops to $90 and I cover my short by sending GS $90. There's still no real share to deal with.
So GS gave me $100, had no source for that money other than their pockets, and I gave them back $90. They're down $10 of their own money.
This can't be how it works or they wouldn't do it, and if they did, no one would be complaining.
So how does it actually work?
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#9Should the public have the right to see the full details of "fails"?
The SEC website says disclosing this info would put firms like GS at a competitive disadvantage.
But someone has to know which sales cleared and which did not.
How can we accurately set a market price for something based on historical sales data that may in part be false (i.e. sales that were never cleared)?
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#10Earlier quoted context omitted.
No, the profit doesn't come from GS. Say you think XYZ, currently priced at $100 is going to go down in price. You tell your broker (GS in this case) to short 1 share in the market. GS sells XYZ (someone else buys it) and you get $100 in your account while the quantity of XYZ shows up as -1. Later, the price does drop to $90. You tell GS to buy 1 share, and you pay $90 for that share. You now have $10 in your account…
But if it's a naked short, the only transactions are between me and GS. I sell short at $100, GS gives me that $100. If there's no share behind that to sell, then they just gave me that $100 out of their own pocket, right? So then the stock drops to $90 and I cover my short by sending GS $90. There's still no real share to deal with. So GS gave me $100, had no source for that money other than their pockets, and I gav…
I think the difference is that no money changes hands.
Normal shorting is when you "borrow" a share from someone else with the promise of giving it back at a given date. You sell it and pocket the current price, then try and buy back the share in the future at a lower price, pocketing the difference.
In reality, money never changes hands during a short (other than the cost of setting up the short). The short is only due at the end of the borrowing period (or before if a margin call happens).
So in the case of a naked short, it's more of a bet on GS part. They don't located a share to "lend" you, they just say "ok, pay us a few dollars and you have a short". If the stock goes down, GS gives you the difference, if it goes up, you pay up.
It's basically a bet and GS is the counterparty.