Our Economy Was Pushed Off the Edge.

What do the Wall Street Journal, other members of the media, a $40 trillion company (yes, you read that right), Lehman Brothers, Merrill Lynch, Fannie Mae and Freddie Mac all have in common?

Fraud.

But not just in the way you assume...

Keep reading, because some of this may surprise you.


Late last month, Forbes finally published an Op Ed piece written by Patrick Byrne, Overstock.com's CEO, which had been written for the Wall Street Journal more than two years earlier, but ultimately refused by them in the eleventh hour.

In the piece, Byrne blew the lid off of a widespread criminal practice in the trading markets, known as naked short selling.

But first, a little history...

In 1999, the Depository Trust & Clearing Corporation (DTCC) was created as holding company for the Depository Trust Company (DTC) and National Securities Clearing Corporation (NSCC). Each of those companies had been established decades earlier in an effort to convert paper trading transactions into electronic transactions.

Wall Street's "Paperwork Crisis"

With the New York Stock Exchange (NYSE) handling 10 to 12 million shares daily, brokers were literally buried in paperwork, and concern about risk was growing in Congress, the Securities and Exchange Commission, and elsewhere.

The crisis became so severe that, in order to help reduce the backlog, the exchanges closed every Wednesday, shortened trading hours on the other days, and extended settlement to T+5 from T+4. Eventually the industry developed two separate and distinct approaches to solve the paperwork problem.

One Solution: Immobilization

The first solution was to immobilize physical stock certificates by maintaining them in a central location or depository, and to record changes of ownership using "book-entry" accounting methods where no certificates actually change hands. Initially, this was done by the NYSE and its Central Certificate Service. That led to the creation of DTCC's depository subsidiary in 1973.

Another Solution: Netting

The second approach to solving the paperwork crisis involved a concept called multilateral netting. If one broker does 100 trades in IBM, both buying and selling at different prices with a variety of different brokers, there are few opportunities for netting. By interposing a central organization as the counterparty to all trades, all that broker's trades in IBM can settle to one net position, and all money for trades in all securities can settle to a single dollar figure owed to or from the central counterparty.

Link.

DTCC's DTC depository provides custody and asset servicing for 3.5 million securities issues, comprised mostly of stocks and bonds, from the United States and 110 other countries and territories, valued at $40 trillion, more than any other depository in the world.

In 2007, DTCC settled the vast majority of securities transactions in the United States, more than $1.86 quadrillion in value.

Some of you may still be unclear as to what all of this really means.

The following article describes what the DTCC does in another way:

In brief, they process the vast majority of all stock transactions in the United States as well as for many other countries. And - and that's the real interesting part - 99% of all stocks in the U.S. appear to be legally owned by them.

In the old days, when you owned stocks you would have the stock certificates lying in your safe. And if you needed to trade them, you needed to get them shipped off to a broker. Nowadays that would be considered very cumbersome, and it would be impractical to invest via computer or over the phone. So the shortcut was invented that the broker would hold your stocks instead of you. And in order for him to legally be able to trade them for you, the stocks were placed under their "street name". I.e. they're in the name of the brokerage, but they're just holding them in trust and trading them for you. And you're in reality the beneficiary rather than the owner. Which is all fine and dandy if everything goes right. Now, it appears the rules were then changed so the brokers are not allowed any longer to put the stocks in their own name. Instead, what they typically do is to put the stocks into the name of "Cede and Company" or "Cede & Co" or some such variation. And the broker might tell you that it is just a fictitious name, and will explain why it is really more practical to do that than to put it in your name.

The problem with that is that it appears that Cede isn't just some dummy name, but an actual corporation that DTCC controls. And, well, if you ask anybody about this, who actually knows about it, they will naturally tell you that it is all a formality. To serve you better, of course. And, well, maybe it is. DTCC seems like a nice and friendly company. It is a private company, owned by the same people (major U.S. banks) who own the Federal Reserve Bank. And if they all stick to their job, and just keep the money and your stocks flowing smoothly, I'm sure that is all well and good. But if somebody at some point should decide otherwise, and there's a national U.S. emergency and/or the U.S. government becomes unable to pay its debts, well, they might just not give you your stocks back. Because legally they own them. Something to think about.

Ming the Mechanic: The unknown 20 trillion dollar company

Now THAT should be clear as a bell. The implications are staggering!

But back to the main subject of this thread...

Naked short selling.

Wikipedia describes the term as follows:

Naked short selling, or naked shorting, is the practice of selling a stock short, without first borrowing the shares or ensuring that the shares can be borrowed as is done in a conventional short sale. When the seller does not obtain the shares within the required time frame, the result is known as a "fail to deliver". However, the transaction generally remains open until the shares are acquired by the seller or the seller's broker, allowing a trade to occur when the order is filled.

Link.

In other words, a trader sells a stock he doesn't actually own.

(A word of caution: For reasons described more fully below, you have to treat the remainder of the Wikapedia entry above on naked short selling with some level of suspicion. Again, you'll see why shortly...)

On September 23, 2008, Patrick Byrne's piece published by Forbes, described the following:

Recent concerns about short-selling have culminated in a regulatory flurry of emergency orders and amendments. What should be of concern, however, is not short-selling per se: As its devotees frequently remind us, short-selling is a vital and legitimate market activity. What should be of concern are specific types of stock manipulation that cloak themselves within legitimate activities such as shorting, and which, in one way or another, rely upon loopholes in our nation's system of stock settlement.

"Settlement" is the moment in a stock trade when the seller receives money and the buyer receives stock. Our settlement system has gaping loopholes that allow sellers to sell shares but fail to deliver them. In such cases, the system creates IOUs for shares, and lets those "stock IOUs" circulate in the expectation the seller will soon correct his error. This is harmless--as long as the IOUs are inadvertent, temporary and few.

Manipulators are exploiting these loopholes, however, selling stock they do not intend to deliver. This is often referred to as "naked short-selling" (short-selling because they feign selling borrowed shares; naked because they don't really borrow shares, but instead deliberately rely on loopholes to generate and hide stock IOUs).

Naked In Wonderland

Sounds pretty wild, huh?

Byrne continues:

However, naked short-selling is just one form this manipulation takes. Other forms include failed long-sales, abuse of the option-market-maker exception, failed offshore deliveries and ex-clearing abuses. The common denominator of these manipulations is that they flood the system with stock IOUs that are deliberate, persistent and massive.

"Deliberate."

"Persistent."

"Massive."

How could this be????

Byrne points out:

According to former Undersecretary of Commerce for Economics Dr. Robert Shapiro, "There is considerable evidence that market manipulation through the use of naked short-sales has been much more common than almost anyone has suspected, and certainly more widespread than most investors believe."

His research turned up at least 200 companies that were destroyed, for "a combined market loss of more than $105 billion." Shapiro added, "we believe that this type of stock manipulation has occurred in many hundreds and perhaps thousands of cases over the last decade. ... Illicit short-sales on such a scale or anything approaching it point to grave inadequacies in the current regulatory regime."

See also, Robert Shapiro on Naked Short Selling.

So when Byrne wrote his article for the Wall Street Journal, and at the request of one of its editors, he knew he'd be facing some stiff opposition to his claims.

[edit on 7-10-2008 by loam]

Our Economy Pushed Off the Edge in Plain Sight. (Cont.)

"An editor at The Journal asked me to write it, and I told him he wouldn't be allowed to publish it," Byrne says. "He insisted that only he controlled what was printed on the editorial page, so I wrote it. Then, after a few days, he got back to me and said 'It appears I can't run this or anything else you write.'"

Link.

The Wall Street Journal experience wasn't the only resistance Byrne's message met over time:

But for years, The Journal and so many other news outlets ignored Byrne's warnings, with some journalists - most notably a Forbes.com columnist and former BusinessWeek reporter named Gary Weiss - painting the Overstock CEO as a raving madman.

Byrne has long argued that the press dismissed his views at least in part because Weiss - hiding behind various anonymous accounts - spent years controlling the relevant articles on Wikipedia, the "free online encyclopedia anyone can edit."

"At some level, you can control the public discourse from Wikipedia," Byrne says. "No matter what journalists say about the reliability of Wikipedia, they still use it as a resource. I have no doubt that journalists who I discussed [naked shorting] with decided not to do stories after reading Wikipedia - whose treatment [of naked short selling] was completely divorced from reality."

Link.

And notwithstanding the denials, the Register determined:

As recently as last week, Weiss told us he's never even edited Wikipedia. But emails shared with Byrne and The Register show that Weiss has in fact edited the encyclopedia's article on naked shorting. And they indicate he's behind an infamous Wikipedia account known as "Mantanmoreland," an account that - with the backing of the site's brain trust - ruled the articles on naked shorting, Patrick Byrne, and Overstock from January 2006 to March 2008.

A single Wikipedia edit also links the Mantanmoreland account to a PC inside the Depository Trust & Clearing Corporation (DTCC). Owned by Wall Street investment banks that may have benefited from naked shorting schemes, the DTCC oversees the delivery of stocks on Wall Street.

Emails show journalist rigged Wikipedia's naked shorts.

Byrne's article warned that:

...manipulators selling millions of stock IOUs drive down share prices: If they choose the right target (e.g., a large financial firm already weakened by exposure to the mortgage crisis, or a small biotech company sipping at capital as it develops drugs), this can crash the firm.

Byrne continued:

The Securities and Exchange Commission has revealed that, during the second quarter of 2008, there were $14.9 billion in stock IOUs at just the tip of the non-settlement iceberg. The commission refuses to reveal (and, in fact, may not know) the size of the whole iceberg. Public data suggests the entire bucket may be over $150 billion; settling it would cost more than $150 billion, but perhaps far, far more.

Our settlement system lies within a black-box called the Depository Trust & Clearance Corporation. The DTCC is essentially unregulated, but is owned by those who benefit from seeing these activities continue--investment banks, which in return for prime brokerage fees, enable manipulative hedge funds.

When these loopholes began to be exposed this winter, Wall Street started to eat its own. In a moment of Shakespearean irony, Bear Stearns--with its legendary willingness to provide cover to manipulative hedge funds--became the target. Stock IOUs in Bear Stearns spiked, as they subsequently did in Lehman Brothers (nyse: LEH - news - people ), Merrill Lynch (nyse: MER - news - people ), Fannie Mae (nyse: FNM - news - people ) and Freddie Mac (nyse: FRE - news - people ).

Naked In Wonderland.

And so there you have it.

"Deliberate."

"Persistent."

"Massive."

And, Ignored.

Naked In Wonderland, indeed.

Did you learn anything new???



I did.



:shk:



Incidentally, who do you think did most of the pushing???

[edit on 6-10-2008 by loam]

Excellent thread!

I always suspected there was an alternative hole through which the wealth was being funneled. I expect this is it.

Is it any wonder they want no regulation of their industry?

reply to post by Maxmars


It really is criminal how this seemed actively hidden or ignored by almost everyone as long as this didn't affect the big guys.

What's really interesting, is it looks like they really don't plan to permanently fix the problem. So whatever goes on today will or could all happen all over again.


[edit on 6-10-2008 by loam]

reply to post by loam


Great post, the media is going to largely ignore this unless some miracle occurs.

If this gets out and the public feels like doing some research, pitchforks and torches will be in high demand.

Here's more on the SEC's recent enforcement actions... It's ironic how they waited until the perps became the victims of their own practices:

Part 1


Part 2


Here also is an outstanding source laying out much of what I've already included, but with lots of great additional research:

Russian Mafia Conspiracy on Wall Street in Media and Government

And then, something amazing happens: the Market Reform Movement goes mainstream. Members of Congress, brave individuals inside the Securities and Exchange Commission, the U.S. Chamber of Commerce, famous trial lawyers, respected economists and recovering stock brokers all reach the same conclusion: hundreds of companies have been victimized by the very crimes that Patrick laid out in his “Miscreants’ Ball” presentation - the ones that the Easter Bunny and his band of blogging oddballs have been describing for years.

...

The crimes are the work of Wall Street hedge fund managers and brokers who engage in a common trading strategy known as short-selling...Their most egregious trick is to sell “phantom stock.” By exploiting a glitch in Wall Street’s computerized trading system, and a loophole in federal regulations, some hedge funds sell virtually unlimited amounts of stock that they have not yet borrowed or purchased.

...

Patrick has written a blog explaining how this works in laymen’s terms. An economist has written a detailed history of “failures to deliver” (i.e. stock sold and not delivered, because it is phantom stock) for Regulation magazine, published by the Cato Institute. A former SEC Chairman has spoken extensively against the problem. Many other researchers, several professors, a former SEC economist, and a former deputy secretary of commerce have also written papers on the subject. If you are interested in the mechanics of the crime, read some of those papers here, here, here, here, here, and here.

The source continues:

But it is enough to know that by the time Patrick gives his “Miscreants’ Ball” presentation, the Securities and Exchange Commission has published a list of more than 300 companies whose stock has been sold but never delivered in excessive quantities. In other words, a significant fraction of the stock sold in more than 300 companies is phantom stock. If you think you own shares in one of these companies, the chances are that a broker has sold you air to satisfy a crooked hedge fund client. The computer might say that you own stock, but in reality, you do not.

In addition to the 300-plus companies on the SEC’s list, as many as 1,000 companies have already been wiped off the map by illegal short-selling, according to some experts.

:shk:

What a mess.

[edit on 7-10-2008 by loam]

And this from just today...



Fuld says Lehman victim of naked short sellers

The short sellers did it, Richard Fuld, the former chief executive of Lehman Brothers, said in testimony to a Congressional committee on Monday.

In an extraordinary public autopsy into the biggest bankruptcy in US history, Mr Fuld declared that he felt “horrible” about what had happened to the venerable investment bank. He insisted, however, that Lehman was brought down by a crisis of confidence in the marketplace combined with a plague of naked short selling.

By blaming the short sellers, Mr Fuld echoed the testimony of a fellow victim of the credit crisis earlier this year. Alan Schwartz, former chief executive of Bear Stearns, told a Senate committee in April that short sellers had helped create a run on the bank, which sapped Bear Stearns’ liquidity and forced it into a shotgun marriage with JPMorgan Chase.

...but when it happened to other companies, it was all ok.

[edit on 7-10-2008 by loam]

its rare i rave about a OP but damn that was was some good information, i only had a vague idea of what was going on but it explained it in terms even i could understand

if i could give you an applause i would, maybe ill try and become a moderator just so i can

Excellent post . . . The thing that is most disturbing is the "deliberate". I think we are all seeing who is going to benefit from this deliberate tactic.

Hopefully, more people start making noise . . . and they don't wait until it's run it's course.

Wow. I'm so disgusted by my own species. Are we just incapable of doing the right thing? It seems like people only care about getting all the money and power they can get at the expense of everyone and everything. Its a sick world.

I've said it before and I'll say it again. Theres a right way to do things and a wrong way. If we do things right the first time, everything will go smoothly but if we do things the wrong way then we get results like our current economic disaster. Why are people so incapable of just doing the right thing.

When everyone playing the game is a cheater, nobody wins.

So now you know that the stock market and the credit market are a massive Ponzi scheme..wealth conjured into thin air by the keystroke of a computer.
What are you going to do? Recognize that your true wealth resides in the things that you actually OWN. Food and other supplies..your ability to survive is going to depend on the assets you own and control..not your NOTIONAL WEALTH ie your 401k which can be the victim of specious and capricious accounting. GOLD & SILVER can not be created with the stroke of a pen. It must be mined refined sold and held... that's wealth of the ages.
The accounting is just getting started and TODAY it is not too late..to convert your paper to something that will hold value.
Paper is paper is paper..cant eat it, but you can warm yourself with it assuming you can afford the price of a match. Fasten your seatbelts its going to be a bumpy ride.

Originally posted by loam

Fuld says Lehman victim of naked short sellers
...but when it happened to other companies, it was all ok.

[edit on 6-10-2008 by loam]

Its the Pot calling the Kettle Black!

This mess was all part of the plan,y'all the shortsellers were merely triggermen for this robbery now the NWO/Banker cartel will try and finish the job but,we must not let them win! wake up as many people as y'all can,put as much pressure on this system as possible.The Revolution is coming one way or another.

god, my head is literally spinning right now.


great post!

i'm going to have to read that one over again so that maybe i can memorize it so that i can explain to my dad all of the crap that led up to his retirement savings being diminished by close to 70%

Also be very wary of those calling for banking institutions to fail and let the market sort them out. With any institution that holds other peoples money (savings, pensions etc) there is a legal safeguard but NOT for all of it ($100k in the US and £50k in the UK). This means that when a bank collapses somebody can step in, pay off the legal minimum to savers and yet here's the good bit, continue to demand repayment of ALL monies owed to the failed bank.....hmmmm. Basically legal theft of all savings above the legal minimum! The greedy predators are loving this situation and will make themselves even wealthier than they already are.

Here's a law change that these high flying thieves would hate : When any institution fails the savers loss is offset against the debtors debts as part of the takeover.

Here's another law : financial institutions cannot be public limited companies (this ensures the owners are liable for any collapse!)

Guess what I saw on Channel 4 news yesterday : A private equity owner stating his view of the future which included unregulated banks otherwise they would have problems functioning properly when the recovery occurs! Honest I nearly fell off my chair, quite how the presenter didn't get tore in I have no idea? He probably missed the comment since it was subtle.

Great post, excellent work. Makes very clear sense. I guess the bigger question is what stock these days are actually work anything. If you are invested in a company with considerable assetts, you should be alright, but the rest of the financial companies are all hot air. Sounds like a computerized version the the Gaurantee Trust Corporation fraud scheme in 1929 (I think I have the companies name right). Ficticious stocks backed by other ficticious stocks bought and sold with ficticious stocks to give the illusion of some sort of net worth. Once too many balls got into the air, almost everything hit the ground.

I hope they all lose their shirts, because like usual, no one will be punished by the law.

What a great thread! But....it makes me dizzy. I have a really hard time understanding the details....the langauge.....but I get it intuitively.

I'm not an economist. When the boom was building I told my husband stay out of this real estate market it's not real. Now, I am thinking the bail out was to pay China some money for all the bad debt they've been buying and to blazes with the US economy.

All of this is about Wall Streets clever manipulations of what they agree is collateral for someone's investment......what about real property? I see alot of issue about foreclosures but I don't see those real properties factoring into any type of solution. When Paulsen talks about buying assets is he talking about these paper deals or the real property assets? If he is talking about the real property assets, have we witenessed the beginning of the end of private property ownership?

I do not mean for this to be off topic, so if it is please direct me to the proper thread.

[edit on 7-10-2008 by missvicky]

Naked shorting is no excuse for company failure in my opinion.

Reliance Industries (India's biggest company) was subject to a bear ring attack (massive coordinated naked shorting) in the 1980s. Coordinated shorting in the form of a bear ring is of course illegal.

Anyway, 10 wealthy American bankers got together and decided to naked short Reliance shares. Word of this spread to the leader of Reliance, Dirubhai Ambani. Instead of panicking or tipping the authorities off, he allowed the bear ring attack to go on. What he did is he took a funding line and continuously bought all the shares that the bear ring were shorting. So instead of driving down the share price, the price went up considerably.

Net result: the bear ring bankers lost $100m each, Reliance shares soared in price as they were more concentrated.

There is always a way to fight back... its a shame Lehman didnt think of it. FYI Goldman Sachs' price to book ratio was such 2 weeks ago that they could have bought out all shares and taken themselves private!

Originally posted by malcr
With any institution that holds other peoples money (savings, pensions etc) there is a legal safeguard but NOT for all of it ($100k in the US and £50k in the UK).

Actually, those of us in the US just got a raise. We now have $250k FDIC insurance for depositors till 12/31/2009, thanks to tha blackmail bill.

Of course, because of where it came from, this wasn't really done for us, I suspect it's to stop people from moving their money around till they have control of us again. It was really becoming a headache as people realized how unstable the banks have become.

Te revolution can come in a month if everyone who voted for the Bailout gts a pink slip in the elections. It won't stop the crisis, but it could stop the madness if the American people make it clear in November.

Granted, that excludes any votes for the two senators running for election, but the majority of people told them not to vote for this, and they did anyway. If only there were enough time to organize ALL these people behind ONE third party cadidate, while knocking out all the Congressmen and Senators who backed this, now that would live in history bigger than this financial crisis.

Not that it would fix it, but it would send a clear message that we aren't going to take it anymore.

Cough Cough er If this is the way its done and I have no doubts that it is, what does it say about this guy........

www.thisislondon.co.uk...

OMG I'm like totally shocked, I never would have suspected: