This kind of aggressive shorting makes me start to wonder are these type of investors the real cancer behind the unemployment growth in this country? You read more and more about these kind of shenanigans and start to wonder what would happen if we actually started to lock-up/punish all of these crooks, what would be the aftermath? Would we see a slow growth in this countries GDP based on income growth from small & large businesses? Makes you wonder if we came swinging with large hammers and destroyed their worlds what kind of foundation would arise out of their financial destruction.
Documents Show How Goldman et al Engaged in 'Naked Short Selling'
21–30 of 55 posts
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#22That 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 d…
What's the problem with it, really? If A promises B to sell him something and then A can't deliver for some reason, then B will stand to be compensated by A for any damages resulting from that. Why would it be special for stock? Of course there is the risk that massive naked trades will influence the price of stocks, but that should just be priced in, like any other risk, no? What am I missing?
Uh,
The risk of massive short sales are not to the naked short-sellers. Thus the market does not work as an automatic way system taking this into account.
Moreover, the hypothetical that the market prices in bad behavior is not a justification for bad behavior.
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#23Earlier 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?
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.…
And moreover, creating an apparent supply of the stock which didn't exist before would exert downward pressure on the stock (by supply-and-demand), hurting the holders of the company's shares. So he made the profit scenario more likely for himself.
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#24That 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 d…
What's the problem with it, really? If A promises B to sell him something and then A can't deliver for some reason, then B will stand to be compensated by A for any damages resulting from that. Why would it be special for stock? Of course there is the risk that massive naked trades will influence the price of stocks, but that should just be priced in, like any other risk, no? What am I missing?
When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#25Ok, here's the full quote: Last week, in response to an Overstock.com motion to unseal certain documents, the banks' lawyers, apparently accidentally, filed an unredacted version of Overstock's motion as an exhibit in their declaration of opposition to that motion. In doing so, they inadvertently entered into the public record a sort of greatest-hits selection of the very material they've been fighting for years to k…
> This means that Overstock's accusation is now public. This says nothing about the veracity of the accusation.
The information about this comes from internal Goldman emails produced during discovery which admit to the practice. Emails that Goldman has fought in court to prevent the release of, only to have one of their own lawyers screw up by filing something not under seal.
EDIT: If you want to quote the actual emails, I've added most of the quotes from them below:
"Fuck the compliance area – procedures, schmecedures," chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.
"He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding," the lobbyist writes, "while resistance results in isolation."
“We are NOT borrowing negatives… I have made that clear from the beginning. Why would we want to borrow them? We want to fail them.”
“Two months ago 107% of the floating was short!”
“We have to be careful not to link locates to fails [because] we have told the regulators we can’t,” one executive is quoted as saying, in the document.
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#26Earlier quoted context omitted.
What's the problem with it, really? If A promises B to sell him something and then A can't deliver for some reason, then B will stand to be compensated by A for any damages resulting from that. Why would it be special for stock? Of course there is the risk that massive naked trades will influence the price of stocks, but that should just be priced in, like any other risk, no? What am I missing?
When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.
But doesn't there need to be a way to bet that something is overpriced?
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#27Folks you still are not getting it..
Short selling is selling a stock you do not own in exchange with a promise to pay for it with either stock or cash.
Naked short selling is pump-dumping a stock price with FALSE TRADES.
any individual trader caught doing this would be doing 40 years in the nearest FED prison...its time for some GS execs to be facing jail time..no exceptions no get out of jail due to friends with Obama cards used
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#28I started reading Patrick Byrne's adventures in Naked Short Selling in the beginning but have since trailed off (this is like 10 years ago mind you). Perhaps his infamous "Miscreants Ball" diatribe kicked everything off which has been ridiculed since day one but begins to be prescient as more and more news of NSS surfaces. He now funds/participates in http://www.deepcapture.com/ which is fun reading from time to time. It's been quite a ride; I must give him kudos for his stamina but having read his speech from Pan-Mass http://www.pmc.org/articles.asp?ArticleID=110 regarding his life, one can't help but root for the guy.
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#29Earlier quoted context omitted.
What's the problem with it, really? If A promises B to sell him something and then A can't deliver for some reason, then B will stand to be compensated by A for any damages resulting from that. Why would it be special for stock? Of course there is the risk that massive naked trades will influence the price of stocks, but that should just be priced in, like any other risk, no? What am I missing?
When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.
I've never got the impression that most economists think short selling distorts the market's price discovery mechanisms, and it's really dishearting that the GP is being downvoted for, plainly and clearly, stating what is economic orthodoxy.
Anyway, the futures market has functioned for centuries with people buying and selling what they don't own, and the big institutional buyers and sellers commonly use futures prices as their benchmark prices. It looks like the smart money isn't too concerned about negative effects on price discovery.
Also, let's not confuse playing by the clearly established rules of the market with "fraud". Moral objection is no excuse for equivocation.
Re: Documents Show How Goldman et al Engaged in 'Naked Short Selling'
#30Earlier quoted context omitted.
When you're selling something you don't own you're distorting the market's price discovery mechanisms. In many contexts I think most people would consider it fraudulent to sell something before you've bought it.
I've never got the impression that most economists think short selling distorts the market's price discovery mechanisms, and it's really dishearting that the GP is being downvoted for, plainly and clearly, stating what is economic orthodoxy. Anyway, the futures market has functioned for centuries with people buying and selling what they don't own, and the big institutional buyers and sellers commonly use futures pric…
Normal short selling doesn't distort price discovery. Khan Academy describes this quite well: http://www.youtube.com/watch?v=zAkMhEqWFF0.
However, with naked short selling it's a different story. When you're short selling something that you don't own you're in effect making it look like the supply is bigger than it actually is. This distorts the price discovery mechanism.