Hedge Funds and the Global Economic Meltdown

[Rajiv]

Short selling hedge funds lit the spark that led to the global economic meltdown. Now they want to help craft the laws Congress will pass to fix our broken regulatory system. That's insane.

23:50

[LargoWinch]

Re: Hedge Funds and the Global Economic Meltdown

Naked Short Selling is the culprit. Alright.

Then this begs the questions:

a) Why was this not done before by market participants to generate profits since it is so easy (as the clip argues)?

b) Why was it limited to a few corporations?

c) Why the banks' management not notice this fact (naked Shorts) about their stock and try to do something about it?

d) Can the SEC be that incompetent? (ok here this point may be weak, but still).


Note: I fully understand Rajiv that the clip does not necessarily represent your views. Put it another way: I am simply being critical of the message contained in the clip and certainly not of yourself

[Rajiv]

Re: Hedge Funds and the Global Economic Meltdown

Answers to your questions below

Naked Short Selling is the culprit. Alright.

Then this begs the questions:

a) Why was this not done before by market participants to generate profits since it is so easy (as the clip argues)?

Ans. It was done before -- much before! The earliest public documentation that I know of was a book published in the 1970s

b) Why was it limited to a few corporations?

Ans. It was not -- it was just egregious and totally apparent here

c) Why the banks' management not notice this fact (naked Shorts) about their stock and try to do something about it?

They do try -- but it is not easy to prove --until it is totally egregious -- but often, the corporations benefit from this exercise also -- remember having access to counterfeit shares (naked shorts) can be used to manipulate stock prices in either direction!

d) Can the SEC be that incompetent? (ok here this point may be weak, but still).

Not incompetent -- but complicit -- remember Madoff was the chairman of NASDAQ


Note: I fully understand Rajiv that the clip does not necessarily represent your views. Put it another way: I am simply being critical of the message contained in the clip and certainly not of yourself

Look at Patrick Byrne's very good presentation http://deepcapturethemovie.com/

See also this very instructive piece - Why The DTCC Is A Prime Mover In Securities Fraud and Naked Shorting

Remember with the ability to naked short, one can accumulate "counterfeit shares" then in conjunction with derivatives it is very easy to manipulate the market in either direction.

What was Richard Grasso Chairman NYSE doing with a FARC Commander

I have not touched the stock Market since 2002 ever since I discovered first hand how easy it was to manipulate the market!

Here are two papers for you - Stock Market Manipulation — Theory and Evidence

The Economics of Naked Short Selling

The above paper assumes that buyers of a stock will ask for their share certificate -- that often is not the case. However, if the DTCC and the SEC do not enforce the short selling rules, all the share certificates could be "physically held by their owners" and yet the following day shares will transact even though none of the owners have sold any shares -- as was shown in the DTCC link!