This month, Matt exposes the highly illegal (http://taibbi.rssoundingboard.com/short-selling-vs-naked-short-selling-an-explanation#), yet highly widespread practice of “naked short-selling”- selling a stock short and NOT delivering it to the buyer when required by exchange rules. Basically, this creates counterfeit stock that can be manipulated; it’s a very effective way to create a bear run on a company and make a boatload of money.
For years, this rape of companies was confined to the smaller ones, and the practice was mostly confined to boiler-room brokers. This time, however, Wall Street giants had begun to eat each other. Yes, the practice is illegal. Yes, Wall Street regulators did nothing about it. Investigate Goldman Sachs? That would mean the government was investigating itself.
In “Wall Street’s Naked Swindle” (http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle), Taibbi examines how a scheme to flood the market with counterfeit stocks helped kill Bears Stearns and Lehman Brothers — and the feds have yet to bust the culprits. He begins with an astounding story:
On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — “like buying 1.7 million lottery tickets,” according to one financial analyst.
But what’s even crazier is that the bet paid.
At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.
The very next day, March 12th, Bear went into free fall. By the end of the week, the firm had lost virtually all of its cash and was clinging to promises of state aid; by the weekend, it was being knocked to its knees by the Fed and the Treasury, and forced at the barrel of a shotgun to sell itself to JPMorgan Chase (which had been given $29 billion in public money to marry its hunchbacked new bride) at the humiliating price of … $2 a share. Whoever bought those options on March 11th woke up on the morning of March 17th having made 159 times his money, or roughly $270 million. This trader was either the luckiest guy in the world, the smartest son of a bitch ever or…
Or what? That this was a brazen case of insider manipulation was so obvious that even Sen. Chris Dodd, chairman of the pillow-soft-touch Senate Banking Committee, couldn’t help but remark on it a few weeks later, when questioning Christopher Cox, the then-chief of the Securities and Exchange Commission. “I would hope that you’re looking at this,” Dodd said. “This kind of spike must have triggered some sort of bells and whistles at the SEC. This goes beyond rumors.”
Cox nodded sternly and promised, yes, he would look into it. What actually happened is another matter. Although the SEC issued more than 50 subpoenas to Wall Street firms, it has yet to identify the mysterious trader who somehow seemed to know in advance that one of the five largest investment banks in America was going to completely tank in a matter of days. “I’ve seen the SEC send agents overseas in a simple insider-trading case to investigate profits of maybe $2,000,” says Brent Baker, a former senior counsel for the commission. “But they did nothing to stop this.”
The SEC’s halfhearted oversight didn’t go unnoticed by the market. Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers — another top-five investment bank that in September 2008 was vaporized in an obvious case of market manipulation. From there, the financial crisis was on, and the global economy went into full-blown crater mode.
Most of the Right Soup knows I spent over 20 years as a portfolio manager, and Bear Stearns was where I got my start. It’s death was a sad event for me; I competed against Goldman for many years. It is ludicrous that these obviously illegal trades haven’t been investigated…it isn’t that hard to track down the culprits, (the biggest suspect being Goldman Sachs.)
But Goldman is “The Club” (http://rightsoup.com/goldman-sachs-and-the-club-masters-of-the-universe/), who has provided a multitude of alumni for the government for many administrations…especially Barack Obama’s. They’re going to make out like bandits if Cap and Trade passes (http://rightsoup.com/goldman-sachs-drools-over-cap-and-trade/). They rule our financial markets, their regulation, and our government. Nobody’s messing with them.
Matt Taibbi’s article is a MUST READ. A must. He’s one of the best financial and political journalists out there, and he lays out a clear picture of what we’re really up against with the bankster thieves. Here’s Matt on naked short-selling and the massive Wall Street swindles. Somebody ring the schoolbell.