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A Wikipedia Conspiracy and the Wall Street Meltdown
PatrickByrne writes "This is The Register's world-class investigative piece concerning one aspect of the meltdown on Wall Street ('naked short selling') and how the criminals engaged a journalist to distort Wikipedia to confuse the discourse. The article explicitly and formally accuses a well-known US financial journalist, Gary Weiss, of lying about his efforts to distort a Wikipedia page under assumed names, and accuses the Powers That Be in Wikipedia (right up to and including Jimbo Wales) of complicity in protecting Weiss. This is not another story about a 15-year-old farm kid in Iowa pretending to be a professor. This is like the worst Chomskian view of Elites manipulating mass opinion. But it is all documented." We discussed the alleged Wikipedia manipulation when The Register first wrote about it last December. The submitter is the CEO of Overstock.com and a major player in this drama from the beginning.
Politics on a wiki is downright bad and lie-heavy.
Dry scienc-y and math-y stuff is most likely right.
For Politick, I go to Faux-News for my daily News(R) and CNN for my other News(D).
In the wake of the SEC's crackdown, the mainstream financial press has acknowledged that widespread and deliberate naked shorting can artificially deflate stock prices, flooding the market with what amounts to counterfeit shares.
How is this different from the trillions of dollars in fake money that are created every year in borrowing/lending arrangements?
Bad idea. So I can take as much short interest as I want up to infinity and that would be legally ok? Hmm, if that were the case, I could drive every stock down to zero then not worry about having to locate stock, because of the abundance available due to those getting margin calls.
A much better solution is to actually monitor the naked shorting occurring in the marketplace and enforce prohibition of the tactic. Stay tuned - the music has stopped on Wall Street and everyone is looking for chairs. Those who haven't paid off their powerful politicos enough will see the finger pointed directly at them. I'd think this is coming up pretty soon (unless they've all paid enough money into the political extortion fund... err, coffers).
Naked shorting is dirty, crappy stuff and those that engage in the practice should rightfully be put in jail. Unlike "normal" shorting, it does absolutely nothing for a society or market other than enrich the criminals perpetrating the crime. It puts small businesses (like overstock.com) out of business. It's just getting real attention now because ironically, the largest perpetrators of naked shorting (read: financials) are now becoming victim of their own practices.
(It should be noted that I'm a capitalistic heathen most of the time, but this naked shorting really is dirty pool)
If you can read this... 01110101 01110010 00100000 01100001 00100000 01100111 01100101 01100101 01101011
Encyclopedias aren't for current events, nything related to current events on Wikipedia can be safely ignored.
sic transit gloria mundi
It's a good thing that they are protecting Weis. We all have an agenda. If we get rid of anonymity, wiki writers will have to start worrying about lunatics tracking them down because of a "biased article".
Smart people know that you can't use wikipedia as a solid source of information.
Whether or not a view is expressed in a Wiki article depends on two things:
1. How many computer literate people hold the view
2. How determined the people with the view are.
Wikipedia is a good starting place for learning about something. But, after you have that start it's extremely important to verify everything.
I've not read any of Chomsky's political theory. But this is definitely a case of the worst sorts of abuses that Wikipedia is susceptible to.
An editor with a nefarious agenda manages to keep a hold of his account for 2 years because the wikipedia elites have an axe to grind against the nefarious editor's opponents. Who in the end turn out to be correct.
If that's not emblematic of everything that's wrong with wikipedia i don't know what is.
Oh, and at least according to Weiss's blog, he's still a contributing editor for Condé Nast Portfolio. I don't know about you, but sustained and concerted efforts to distort a subject should be a firing offense for journalists.
There are lives at stake here!
"Hmm, if that were the case, I could drive every stock down to zero then not worry about having to locate stock, because of the abundance available due to those getting margin calls"
Don't forget short sellers must issue dividends to the people that buy their shorts. So if you massively shorted a profitable company to manipulate its price you would have a huge liability when the company issued a dividend.
If you'd try it, I for one would buy all those shares at discount price, and live on the dividend you'd graciously issue to me every quarter until you accepted to cover your short at a fair price.
The joke would be on you.
Your entire post is an Ad Hominem argument. It says nothing about the truth or otherwise of the accusations against Gary Weiss and others.
The real "Libtards" are the Libertarians!
In every market you've got supply and demand. They balance at the asset price.
Then comes naked short selling. The naked short sellers don't need to borrow shares before they sell them. So unscrupulous agents start creating supply out of thin air. What happens next? As every fool knows, an increase in supply causes the price to drop. Unscrupulous parties continue to naked short the stock, saturating demand through successive price floors. As the price drops, stop-loss orders are activated, exacerbating the decline. Momentum traders will also short the stock. Pretty soon the share price has crashed, the company faces bankruptcy, but the perpetrators can easily cover their position at bottom dollar making millions. All of this is perfectly legal under SEC's rules regarding short sales, REG SHO.
Naked short sales completely destroy the relationship between supply and demand. It allows well connected insiders to make millions or even billions by ruining the market for everybody else.
Yeah, I read TFA. It's rubbish.
Really? Wiki-freaking-pedia was handmaiden to the whole financial meltdown, by whitewashing articles about naked shorting?
And they have some emails to prove that some guy didn't like some other guy, and edited some articles about him, and the admins tried to keep him anonymous, and the other guy's company went bankrupt because of it, the end!
Really, every article I read in The Register about the Great Wikispiracy just feeds stereotypes about British journalism, which is a real shame because those page three girls are really sweet.
(It should be noted that I'm a capitalistic heathen most of the time, but this naked shorting really is dirty pool)
So basically you're a capitalist who believes stealing is still wrong no matter what they call it? go figure I didn't know there were any of you left.
Judd,
I have seen this story for a while now. I my mind however, you blew your credibility with this post
You do know that a Judge wrote an opinion in which he described Merkey as inhabiting his own alternate reality, don't you? If Merkey told me on a mid-summer's day that the sky was blue, I would not believe it without looking for myself.
The real "Libtards" are the Libertarians!
Shorting of all kinds should be banned. It is an abuse of the property rights that form the foundation of capitalism. As Adam Smith pointed out, it is only by accident that capitalism and free markets leverage self-interest to the benefit of others, and it is only under a narrow set of rules and conditions that they do so at all. Where these rules are broken, where markets are inefficient or failing, where the right to own something is abused - as in the instance of shorting, where individuals are deliberately investing in failure - the system does not generate net benefit for all. The system, in such instances, is broken. Shorting is no different than buying an insurance policy on a building you think is likely to collapse or catch fire: that investment does nothing to foster economic growth or redistribute wealth in a maximally productive way; it is an abuse of market inefficiency (in this case, lack of market information and transparency). Cashing in on market inefficiency is the antithesis of capitalism.
A-Bomb
Evidence was collected that pretty unambiguously identifies Gary Weiss as the person behind two Wikipedia accounts which were pushing a point of view on the "Naked Short Selling" article, including a shift in editing hours which corresponded exactly with the period of time that Weiss was in India on his honeymoon, shifting from US east coast time to India time and then back again when Weiss returned to the US. There was general consensus on the identification once that evidence (from the normal, public edit logs) was collected, analyzed, and published.
None of the other Wikipedians involved is involved in the Financial industry or any form of serious investor. Nor did anyone have any particular interest in the topic before the fight broke out on-wiki and off.
It is factually true that Overstock.com CEO Patrick Byrne opposes naked short selling and publically blames it for low stock prices. It's factually true that he and at least one Overstock employee openly and then pseudonymously started a content war on Wikipedia on the article about it. It's generally concluded that the "other side" of this fight primarily was led by Gary Weiss, under two Wikipedia accounts now linked fairly unambiguously to him, though there hasn't been a public admission that I know of. Weiss had a conflict of interest in this matter, as a journalist covering the topic area.
Weiss never had Wikipedia administrator status, and thus the actions which Byrne blames for "censorship" were done by the other Wikipedia participants, mostly actual site administrators, who did not have conflicts of interest over the topic area. Byrne and his employee's accounts were permanently blocked from editing, and hundreds of known "sockpuppet" accounts created and used by them were also blocked. They were blocked because they threatened numerous Wikipedia volunteers, exposed alledged real names (sometimes wrong, sometimes right) of pseudonymous volunteers and personal information both of pseudonymous and openly identified individuals. Threatening phone calls were made to volunteers and their employers, viruses and various web tracking mechanisms were placed onto Byrne's website to try and help ID his alledged persecutors, and illegal access to some of the volunteers computers was made by Byrne and/or his employee. At least one other volunteer in California was subjected to threats and behavior that rose to the level of felony stalking here, though I was unable to get them to file police reports.
Byrne believes that this was all OK, because it did turn out that Weiss was credibly the person behind the two Wikipedia accounts. I for one believe that Byrne's behavior rises to the level of criminal, and that he displays behavior patterns most commonly associated with sociopaths in his online interactions.
His having been correct about Weiss does not change the fact that he is a scary, dangerous person who has little regard for other people's safety or feelings.
making the process transparent
Like circling the wagons around Mantanmoreland?
Transparency means, among other things:
Hiding behind pseudonyms is, by definition, not transparent, and is an invitation to opaque Mantanmoreland-like sock puppetry.
Judd Bagley openly associates with the editors who tried to subject me to police harassment. Given that, the intentions he has in outing editors should be clear.
And if you knew who the identities of the people who were doing this to you, you could point the police back at them.
"I don't know, therefore Aliens" Wafflebox1
I don't understand why the parent was modded troll. He's telling the truth.
Wikipedia is an absolute gift on matters of knowledge in most ways, but its very strength in things like science and math articles are its very weakness in political pages... anyone, including trolls, can edit them. It's kind of hard to write a troll on, say, polynomials. It's all too common to do it to politicians.
And he's right about the US media becoming like the British media. There are no "neutral" media outlets anymore, if indeed they ever existed in the first place. Much as the UK has red papers and Tory papers, US news outlets now all have a bias of some kind. Fox is well known for tending to the right, CNN trended left in the early 90's (that one was a shame, as they were the only truly unbiased news outlet in America during the late 80's). NBC has gone so blatantly to the left that we call it's cable outlet "MSDNC".
Life is hard, and the world is cruel
Now I at least know why people jumped down my throat when I said that I thought short-selling should be abolished because it made the market unstable. The only sort of short selling I knew about WAS naked short selling. And in my case it was just a belief that it discouraged self correction of prices. I didn't know that the brokers actually didn't fulfill the orders (shouldn't that be illegal by the way?)!
What the hell? Really? That's what's going on?
I thought that if you sold short and failed to produce the share, you had to pay all sorts of penalties. Which is why you had to go out and purchase it on the open market.
In fact, I recall an episode of Hustle where con men created a company, pissed off a brokerage that shorted their shares, had some other people purchase all the shares and refuse to sell them, which essentially trapped that brokerage into, in theory, paying penalties to them forever because it could never actually purchase the shares. (Both of their behaviors were technically illegal, but the con men were able to extort money from the brokerage simply because, duh, brokerages that do illegal trades get in all sorts of trouble, whereas con men just vanish into thin air.) Supposedly this was a very old con.
So I always thought naked shorts, while extremely dangerous, and stupid to allow, couldn't actually result in badness except for the people who sold them, who might have to buy them at absurd prices. Although your point about depressing the stock price is valid.
I can't imagine how you can legally fail to produce the stock when you said you would. How the hell would shorts even work if they were somehow optional? Why would anyone pay money for them if, when the time came and the price of the stock had gone up (aka, you 'won' the bet) the other guy could just go 'Oh, nevermind, let's call it off.'?
If corporations are people, aren't stockholders guilty of slavery?
Gee, Judd. I wonder why that could be. Might have had something to do with the fact that your definition of "reason to this madness" consisted of abusively using multiple accounts to push your agenda, and launching vicious personal attacks against your opponents.
Come on, Judd. You've got to know you can't actually expect to come to a forum as well-traveled as Slashdot and get away with presenting half the facts like that.
I love how well prepared you are for this argument. Do you do anything else than hanging around on Wikipedia, fighting trolls and sockpuppet, and watching places like slashdot, in case the peasants try to fight back?
Now the facts are: Naked shorting has cost the US economy billions and billions of dollars. That may have been "POV" in Wkispeak (when I read some "Wikipedians" it really reminds me of Orwell), today it has been dramatically proven to be true. For a long, long time Wikipedia failed completely to create a neutral article about the subject, instead it allowed an interested and well-connected (within Wikipedia) party to manipulate the article. Shit happens. We could hope that Wikipedia learns from its failures, but the chances seem slim.
I'm tempted to apply the Wikipedia {{fact}} template to ask you to document some of your statements. Are your claims that Byrne/Bagley tried to put viruses on people's computers based on the known incident of his use of a tracking image in an HTML file to find somebody's IP address through server logs... something that's hardly rocket science or even advanced computer science... it's an attribute of any image on an external server that might be found in an HTML file on the Web or e-mail... calling it a "virus" or "spyware" is a gross exaggeration.
--Dan
Web Tips
There was a time when the ruling clique of Wikipedia would ban anybody who dared to link to that site.
--Dan
Web Tips
Without the ability to take on short positions, then we cannot have an efficient market, which depends on the ability of all participants to immediately take advantage of any mis-pricing in a security, whether it is too high or too low. Without being able to short something, then the only people that could take advantage of an over-pricing would be people that already own a stock, and they are far fewer in number than the market as a whole, so the whole dynamic would change. Under-pricings would disappear immediately, but even quite obvious over-pricings would linger on for far longer simply because very few people could capitalize on them and bring them back into line. You'd be open to all sorts of abuse and price manipulation on the long side of things because longs couldn't get "picked off" by shorts if they were trying to manipulate prices.
FWIW, a market can likely never be perfectly efficient without naked shorting, but in practice the more liquid markets are very close to efficient because it's always possible to find a lender of the share, so eliminating naked shorts still leaves us pretty close to efficient.
It all depends if you believe that there should be a fair market that quickly finds fair value. Some people think that in itself is a benefit for all of us; without it, I suspect we'd have far less investment overall, which would likely be devastating to the economy. Think about it - if there was a good likelihood that a significant over-pricing was present in every stock on the market because shorting was disallowed, would you be as likely to buy stock at all? I wouldn't, since I'd know that it's extremely likely I'd be overpaying for the thing.
Yes, investing in failure seems to be dirty, and it is indeed cynical, but since the stock market is all about betting (bah to you "investors" that think otherwise - you may be making a long term bet with a different risk profile, but you're still gambling with your money), why should we not be allowed to take the other side of that bet at market value if we wish?
This sounds like shorting, and particularly 'naked shorting', relates to a broader problem that's been much in the news lately.
It's pretty fundamental to abstract capitalism, that people who invest have capital, and they put up that capital, and that capital does a number of things, such as paying for materials and salaries/wages. If you don't have enough capital for a given investment system, you stick to what you can afford, and if you have no capital, you work for someone else. I've been puzzled by the number of businesses that have said "Without this rescue plan, we may not be able to pay our employees.". If they didn't themselves have the money to be in at the capital end of things, why are they the employers and not the employees? Why are some people evidently able to get credit so that they can play at being capitalists, without actually having capital of their own? Naked shorting looks like playing with somebody else putting up the money, but so does a lot of the rest of the system.
I'd have to lean towards even normal shorting being an abuse. As you put it, collateral can be just your reputation. Why? It looks like whole businesses were founded on just reputation, or at least massively under-collateralized. That appears to be pretty common. Some people were 'in the capitalist class', whether they actually had capital or not. Old school ties or something. They could get capital loans and credit regardless of whether they had their own money at risk. If that situation entailed a fundamental error, then the honesty of normal shorting mechanisms isn't enough to make it more ethical than naked shorting, because there's still a fundamental fraudulence at the time of picking who gets to play the game. The in-game rules may be fairer than for naked shorting, but the playing field itself is un-level.
Who is John Cabal?
Oh noes! Asking supporters to Digg and Slashdot an article! That NEVER happens!
How about making margin investing illegal or at least very costly?
I understand that there were 30-1 margin ratios in these subprime packages. Why would anyone be surprised at a blowup?
You are welcome on my lawn.
Hey, check it out! Here's someone that still believes in a "self-correcting" market!
Who wants to bet he believes America is a free country, too?
You are welcome on my lawn.
Yes and such attacks are often accompanies by fear, uncertainty, and doubt spread in the press by a group of journalists, whose articles curiously seem to mirror the short positions of major hedge funds. This places companies in a quandary. If they response to each incident of biased journalism they look weak and defensive, but if they keep silent then misinformation is unchallenged.
Also, one point I"m not sure readers appreciate is how much many algorithmic systems and ordinary investors as well rely on technical analysis, that looks at patterns in price movement as a guide to future price changes. Naked short selling can readily "poison" such the technical picture of a stock and make it appear much weaker than it otherwise would. I've seen it happen in a number of stock I follow. Don't ever assume that the market trades on fundamentals.
"Mom, I found this guy who will pay an outrageous price for a 2003 Saab 9-5 in good condition, like the one in the driveway that you're not using since you got your BMW. I can get another one just like it at a lower price, but I can't get it until next Wednesday. If I give you a hundred bucks, can I sell yours to this guy and replace it next Wednesday?"
Which illustrates the point that shorting of borrowed shares can't be eliminated unless you make transferring shares between people illegal, because for a sufficiently liquid asset you're always going to be able to find someone willing to lend you what they've got for the right price, and this lending does not have to happen through any official channel, they just need to be able to sign the stuff over to you and negotiate a repayment plan on the side. The only reason this doesn't happen in practice with cars is that a) finding "the same" car to replace the borrowed one is not necessarily easy, whereas with a stock most shares are equivalent, and b) it's quite a bit more difficult to transfer ownership and possession of a car than a share of stock.
So wrong, let me count the ways ...
1) Parent baselessly (and falsely) assumes that a drop in the share price will not affect the profitability or solvency of the company.
2) Parent laughably believes that companies with plummeting share prices have lots of capital to issue dividends.
3) Parent apparently believes in some exogenous, universally quantifiable "fair price" of a stock that exists independent of its supply and demand.
4) Parent believes that investors have perfect information and that they could distinguish between a stock price that is legitimately falling and a stock price and one that is the product of manipulation.
5) Parent apparently believes that shareholders who sells below the mythical "fair price" of a stock are "stupid" regardless of the profitability of the trade, the future trajectory of the stock price, or even anticipated future trajectory.
Time for a reality check. The parent suggests that he would respond to naked short market manipulation by buying tons of stocks. But would he?
First, I'll make the very generous assumption that he has a "rational" bank with a similar "understanding" of economics that is willing to extend arbitrary credit to finance his splurge on tanking stocks.
So I assume he could, even though he can't. But would he?
I doubt it. By the parent's own reasoning the stock price really can't deviate at all from the "fair price." Before issuing the order he would cast judgment thusly:
"The free market does not lie! The fall in price must reflect a change in the underlying value of the company. Of course if I knew the asset was trading below it's God-Given Fair Price, I would immediately enforce that price by my own hand. Heavens! I'd leverage to infinity if I thought somebody was making a mockery of the Free Market!"
3 percent can be deadly when combined with massive leverage.
And even if swaps are bets against the performance of the underlying, they still end up worthless if the counterparty has taken on so much leveraged risk in these things that a 3% decline in the underlying leaves them unable to pay you what you are due from your swaps.
Think of it like insurance: usually an insurance company has to show that it can reasonably meet its obligations if something bad happens, so when you buy insurance, you have a reasonable certainty that if the insured event hits you, you're going to get your money. Nobody would buy insurance without that expectation - a million dollar life insurance policy is worthless if the company you've bought it from doesn't have a million dollars. Or at least nobody should buy insurance without some sort of guarantee of payment; this is why the insurance industry is highly regulated, with all sorts of minimum holding requirements and fun stuff like that.
Well, the companies that were peddling these swaps were selling a lot more bad-credit insurance than they could afford to pay, and for some inexplicable reason this was allowed. But the people buying this insurance, when they did their risk assessment, assumed that they would be paid by these insurance policies if the defaults started to roll in. They thought they had hedged against the risk of default. But they hadn't, because they didn't factor in the right amount of counterparty risk, and these counterparties were so leveraged due to the fact that things had been going well (when any quantity rises for long enough, people will allow you to borrow way too much money based on the future gains of that quantity, which is why we have bubbles) that a disaster was just waiting to happen. Then people started to default on their loans. And then there was blood in the streets, all because someone had the brilliant idea to let any old asshole get into the insurance business (in a roundabout way, of course - they didn't actually call it insurance) without having enough money to be in that business.
At least that's my take on this thing. It's got nothing to do with shorting, naked or otherwise, and everything to do with the creation of an entire industry based on a complicated and unregulated derivative that is almost impossible to properly value and allows insane amounts of leverage.
then they would be easily replaced by direct investment with individual companies by individual and institutional investors with an actual interest in the productivity and profitability of the companies in question.
And your evidence for this is what? As a direct investor in a few companies, and as somebody who works a lot with venture-funded startups, it sounds entirely implausible to me.
even if the system were slightly less efficient, the difference would simply be paid for out of the pockets of wealthy investors who currently clean up to the tune of $500 billion or more each year. Companies and their employees in the working and middle class would almost certainly be unaffected, or actually be better off in the final analysis.
There you're entirely wrong.
If your proposed system is less efficient (and I think it would be much more than "slightly"), then I see two obvious effects. First, there is less capital available. Second, that capital is less liquid.
Less capital available means fewer people who want loans to expand their businesses get them, meaning lower economic growth. And those who do get those loans have to pay a higher price for them. That means a greater proportion of the value created goes to the people with the capital, the opposite effect you'd expect.
The lower liquidity gets you other problems. First, if people can't easily get their money out, they'll be less likely to put it in, further driving down growth and raising the cost of capital. Second, you can't really reward most employees with stock, as then they can't sell, or at best can sell to a very limited group. Third, investors who need cash won't be able to get it just by selling shares on the open market, so they'll be more likely to press the company to pay dividends, keeping them cash-poor and limiting opportunity for growth.
Companies issue dividends when they have excess capital, not when their capital is being vaporized.
Are you sure you know what you're talking about?
Companies issue dividends when they have excess cash, not capital. And their stock price going down leaves them with the exact same amount of capital.
There's no doubt who mantanmoreland is and what he did. However there's a vast, well-populated planetary system of doubt around the idea that an elite Wikipedia cabal favoured him because they're out to promote naked shorting and are deliberately keeping Byrne out. Byrne was blocked for behaving like a collosal douche, and went on an offline campaign against the Wikipedia editors who he says are out on a well-laid scheme to destroy his company. That's why he's not allowed to edit any more. That's all there is to it.
No kidding!!! What do you say at this point?