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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.
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
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!
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.
You'd have to go into a bit more detail on exactly what sorts of arrangements you mean to produce a good answer here, but I can give you a partial answer.
No fake money is created in these situations. Money is just a measurement of value - it's a raw form we can convert assets into. But implicit in its idea is a notion of debt as an asset. If I hold a tag sale and sell some stuff, and I get $50 in cash for it, what is my cash, exactly? It's a sort of free-floating, transferrable debt - it means that somebody gave up something that was considered worth something, and obtained a certain amount of purchasing power. By giving up some books and disused furniture, I've obtained $50 of raw purchasing power. Now, in practice, this money is considered to be backed by the US Government - but that is, in the end, immaterial - all that matters is that the green pieces of paper are considered to have an amount of purchasing power.
The thing is, debts and future predicted events have purchasing power. This is what happens when, for instance, I subscribe to a magazine - I send a company $20, and I get 12 issues of a magazine. But 11 of those issues don't exist when I spend my money - what I'm buying is future magazines. This is why subscriptions are cheaper than newsstand - the publisher likes knowing that they have the next 12 issues sold in advance. But in exchange for the inconvenience of paying out for a product that isn't in existence yet, they give me a steep discount off of what I'd normally pay. What I'm really buying, though, isn't the future magazines - it's an obligation to send me the magazines. It's an intangible good - but it's still a good that has value.
Similarly, I can buy a future debt. Why? Because debt has value. And as long as something has value, it is worth money.
Fake money applies differently to naked short selling because there's deception involved - you sell the stock as though you know you'll have it to deliver, and then go try to deliver it. But the person buying doesn't know that. So there's fraud involved. That's the difference - value is being paid for something that is not what it is thought to be. And there fake money comes into it - because something is being represented as having value that it is known not to have.
Philip Sandifer's academic website
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.
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!"