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.

Comments

naked shorts

[AliasMarlowe]

IMO, all short trades should be naked. I'd prefer to see the lending of stocks prohibited. And short traders would not be able to cancel deals retroactively just because they could not buy what they had already contracted to sell (unlimited liability in this instance).

Re:naked shorts

[religious freak]

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)

Re:naked shorts

[syousef]

Naked shorting is dirty, crappy stuff and those that engage in the practice should rightfully be put in jail.

Fuck you! If I want to sit around in my underwear in my own home I should be allowed to do so without fear of being put in jail!

Re:naked shorts

[ScrewMaster]

Naked shorting is dirty, crappy stuff and those that engage in the practice should rightfully be put in jail.

Fuck you! If I want to sit around in my underwear in my own home I should be allowed to do so without fear of being put in jail!

Given that you're posting on Slashdot, odds are you've got plenty of company.

Re:naked shorts

[religious freak]

haha! I am literally "naked shorting" right now myself - so I guess I agree with you.

Re:naked shorts

[starm_]

"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.

Re:naked shorts

[gregbot9000]

(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.

Re:naked shorts

[Bombula]

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.

Re:naked shorts

[FreeFuture]

Fuck you! If you want to strip me down to my underwear in my own home, you should be kicked into jail!

Re:naked shorts

[Score Whore]

A traditional short stock sale requires that you find someone who will loan you their shares in a stock you believe to be over valued. You then sell those shares to someone. When it comes time to return the shares you borrowed, you buy at the lower price that you expected and return them to the person you borrowed from. You get to keep the difference in price.

A naked short means you never borrowed the shares in the first place. You agreed to sell someone some shares and you have a certain amount of time to actually deliver the shares. The idea is that you will find someone to borrow from in the period during which you have to settle the transaction.

Problems arise when the settlement never occurs because the short seller can't find anyone willing to lend the stock and they are faced with buying on the open market at the current price. So they just don't bother to follow through because the cost will end up being, theoritically, infinite. When Broker B finds that Broker A hasn't delivered the stock, they can technically go out and buy on the market and have the bill sent to Broker A. But they rarely do this because what goes around comes around and they will eventually find themselves in the situation where one of their customers initiated the naked short. Whenever the shares aren't settled it's called a failure-to-deliver (FTD) and on any given day the value of the sales that aren't delivered is measured in the tens of billions of dollars.

Because of the FTD, buyers end up thinking they own stock that they don't. And brokers list the stock in the buyer's portfolio and tell the companies that the buyer is an owner of the stock. Companies can end up with more people thinking they own shares than actual shares exist. Leading to devaluation of the stock, limiting the ability of the company to raise funds by selling more stock, and affecting corporate voting.

Another problem is that companies with a small amount of stock in circulation and a fairly low market cap can find that on a daily basis there are more shares offered for sale than actually exist because short sellers are selling without ever finding a person to loan them the shares in the first place. Due to the massive amount of sales being offered the price plummets, defrauding honest investors of value.

Re:naked shorts

[couchslug]

"Fuck you! If I want to sit around in my underwear in my own home I should be allowed to do so without fear of being put in jail!"

This thread is worthless without pics!

Re:naked shorts

[vexas]

01010100 01001001 01001110 01011001 00100000 01010101 01010010 01001100 00100000 00110011 01110100 01111010 00111001 01101101 00111000

Re:naked shorts

[A nonymous Coward]

As if naked shorters hold on to "their" stocks long enough to issue dividends.

Re:naked shorts

[A nonymous Coward]

Shorting of all kinds should be banned. It is an abuse of the property rights that form the foundation of capitalism.

Naked shorting is an abuse, I go along with that because you can do it without any investment at all, and people can naked short more stock than actually exists. But plain short selling requires you to borrow those stocks, they must actually exist, they can't be loaned multiple times invisibly, and you have presumably put up some collateral of some kind or no one would loan you the stocks, even if it is just your reputation.

Re:naked shorts

[DavidTC]

As if companies still issued dividends anyway.

Re:naked shorts

[davolfman]

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?)!

Re:naked shorts

[DavidTC]

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.'?

Re:naked shorts

[Maxmin]

...better solution is to actually monitor the naked shorting occurring in the marketplace and enforce prohibition of the tactic.

That's been done for ... years. Just about every exchange publishes lists of their stocks that have current failure-to-delivers from naked shorting. If you compare the short-seller positions against regular long buys/sells, it's not much.

Halting short sells wouldn't have prevented the current market tankage -- overrated CDOs backed by crappy mortgages caused it. When cashflow from the homeowners slowed, the House of CDO cards collapsed.

It's my impression that short sellers show up at buzzard-feeding time: when the given equity isn't dead yet, generally after the price has a noticeable downward trend. Like most traders, they tend to respond to public news, excluding action/thriller movie plots where short-sellers work with terrorists to ensure downward acceleration of an equity (Casino Royale 2006.)

Re:naked shorts

[DavidTC]

I'm against naked shorting or even borrowed shorting.

I have no problem with people who actually own the stock saying "In two months I will sell this stock for X dollars, if you wish to purchase it then you can buy this 'short' and we'll be legally bound to do that trade at that time."

When we let people borrow stock from others to do that, or even do that without owning the stock at all, which is 'naked shorting', we turn the market into nonsense.

Re:naked shorts

[starm_]

Maybe not, but in order to cover their shorts and make money, they would need to find sellers who are willing to sell at an artificially low price. They would run out of stupid sellers pretty quickly. Only the stupidest sellers would want to sell at a price lower than the dividend potential or the company. The fair price of a stock is always proportional to its expected long term dividend potential.

There is money to be made on the back of short sellers who manipulate prices. It is pretty damn easy to buy their under priced securities and only sell them back at a fair price. There is not much incentive to sell when you are getting dividend potential worth more than the value of the stocks. And if short sellers can't find enough dumb sellers, they will only be able to cover at a loss or wait in hope of a price drop while issuing dividends until they are forced to cover by a margin call.

Re:naked shorts

[KGIII]

I disagree. This is /. after all. If there is one thing I don't want to see it is pictures of this particular activity.

Come to think of it, I don't even want to imagine it.

Unfortunately I have a vivid imagination. Damn you /.!!!

Re:naked shorts

[starm_]

"So they just don't bother to follow through because the cost will end up being, theoritically, infinite. When Broker B finds that Broker A hasn't delivered the stock, they can technically go out and buy on the market and have the bill sent to Broker A. But they rarely do this because what goes around comes around and they will eventually find themselves in the situation where one of their customers initiated the naked short. Whenever the shares aren't settled it's called a failure-to-deliver (FTD) and on any given day the value of the sales that aren't delivered is measured in the tens of billions of dollars."

That's BS. Brokers force short sellers to keep a positive balance by issuing margin calls and will not let them simply not pay to cover their shares. Unless the short sellers go bankrupt, they are liable.

"Due to the massive amount of sales being offered the price plummets, defrauding honest investors of value."

They are not really being defrauded unless they choose to sell at precisely the wrong time at an undervalued price. They do own shares that are under priced and thus more valuable held than sold because the dividend potential is greater than the bid price. However this should correct itself fairly quickly when people realize that the price is too low and they are getting a really good deal by buying even if bidding much higher than the current price (closer to the fair price that reflects the potential dividend payout).

Re:naked shorts

[toby]

Patrick Byrne of overstock.com writes,

As the Wall Street Journal itself reported, the SEC has ordered two dozen hedge funds to turn over trading records as part of its investigation into possible short-seller manipulation of six big financial institutions - American International Group, Goldman Sachs, Lehman Brothers, Morgan Stanley, Washington Mutual, and Merrill Lynch.

The SEC has never in history prosecuted a major case against a short seller, and there is no reason to believe that it is actually going to nail someone now. But it is not difficult to see why the SEC feels that is has no choice but to investigate.

... Aside from Washington Mutual, Bank of America, Fannie Mae, MBIA, Ambac, and close to 50 smaller financial firms - not to mention a couple hundred non-financial companies - have appeared on the SEC-mandated "threshold" list of companies whose stock has "failed to deliver" in excessive quantities.

That, too, is very good evidence of illegal market manipulation.

...

If a company has weaknesses that can be blown out of proportion with help from the media, and if hedge funds blast the company with phantom stock, then pause, then blast again, then pause, then blast again - over and over - for a couple of months, then the company's share price can soon be in the single digits. - without ever having appeared on the SEC's threshold list.

Unsurprisingly, the data through June shows this blast-pause-blast pattern in the stocks of nearly ever major financial institution that has been wiped off the map, and quite a few that were in death spirals before the SEC temporarily banned short-selling. Very often, huge failures to deliver have occurred in stretches of precisely five days - just long enough to keep a stock off the threshold list.

...

At this point, the SEC finally came to realize what was happening to Lehman. It realized that similar madness had destroyed Bear Stearns. It realized that AIG, Citigroup, Fannie Mae, Freddie Mac, Bank of America and fifty other financial companies were getting clobbered in exactly the same fashion.

Clearly, naked short selling posed a real threat to the stability of the financial system. So the SEC issued an emergency order forcing hedge funds to borrow real stock before they sold it. No more saying "Yeah, my cousin Louie has the stock in a drawer somewhere." No more naked short selling.

Re:naked shorts

[starm_]

You are completely right. I think the parents name says it all...

Re:naked shorts

[ClassMyAss]

Shorting of all kinds should be banned. It is an abuse of the property rights that form the foundation of capitalism.

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.

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.

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?

Re:naked shorts

[ClassMyAss]

I have no problem with people who actually own the stock saying "In two months I will sell this stock for X dollars, if you wish to purchase it then you can buy this 'short' and we'll be legally bound to do that trade at that time."

A person that owns the stock being allowed to sell it immediately implies that a person that doesn't own the stock may borrow stock and short it, unless you either make illegal 1) borrowing stock, or 2) selling stock. Forget the market, these agreements could happen over the counter, and would be perfectly fair and legal, the only difference with our system is that for the sake of efficiency our brokers handle this whole borrowing thing for us instead of us having to negotiate the lending ourselves. Short of some massive big brother-ing, there's no reasonable way to completely eliminate the concept of short selling, and if brokers were permanently banned from doing it for us, someone else would show up to facilitate the process and work through the loopholes in any laws that were set up.

Re:naked shorts

[starm_]

That's crap. The price of the shares has no bearing on the ability of the companies to generate profit. In these cases the short sellers were right, the companies were not worth anything, they were not in a position to generate profit and that is not the short sellers fault. The share prices would have gone down regardless.

If the companies were able to generate profit the short sellers would have lost a lot of money and would have been liable to pay dividend to the people they sold to until they covered their shorts. See my other comments in the thread.

Re:naked shorts

[Score Whore]

What actually happens to shares that fail to deliver? Well, that question can best be answered by folks actually doing the cypherin', Perhaps there are different means that can be used. But the best explanation is the "window call flip", which basically is stock kiting. Simply put, I sell to you. In the prescribed period of time, I owe you real shares. Instead, I show you a "confirm" that I bought shares from another participant. Imagine, say, five or fifty five participants, all in a circle. As you can imagine, a tremendous number of shares can float between participants without ever landing in one spot.

Now, motivation. Why does it happen? Why aren't there "buy ins" as referenced for these Brokerage firms? The answer is rather simple. Money. The procedure stipulates that, if Broker X fails to deliver 100,000 shares in the prescribed period of time to Broker Y, "Y" can go into the market place and buy those shares, AND THEN SEND THE BILL TO X!!!!! The trader would go to the representative offer, and indicate he wants certificates. That offer would probably move away, making the trader to go to the next offer, and so on. The market for the stock, especially if it's a small issue (they usually are), would explode until the order is filled. At the same time, trading desks all over the country would be screaming "XXXX buy in coming", and the demand would sky rocket. As the reader can see, this becomes a very expensive proposition. And once 'X', sees the bill, he would most likely retaliate, and buy in "Y' on another issue.

Selling something, at least representing something as for sale, taking money for said item, and then, just pocketing the money is serious enough. But the damage done to the issuing company is at least as severe. Think of this failure as a secondary offering never approved by the company's Board of Directors, signed off on by the SEC, or benefiting the company.

Admittedly that comes from Patrick Byrne's web site.

An excerpt from here.

FTDs can be caused in several ways, but they commonly result from short sales in which the seller does not borrow or even locate the stock he sells (the infamous "naked" short sales). Regardless of how an FTD occurs, for each share not delivered the system creates a "phantom" entitlement the market treats as a real share. These "phantom shares" are supposed to be temporary in duration and few in number. Loopholes, however, are exploited on such a scale, and phantom shares are so persistent, they are corrupting the U.S. equity markets in three ways.

And from here:

The phrase "short positions at the clearing corporation" refers to "failures to deliver" (FTDS), which effectively increase the net supply of an issue in circulation and, by definition, depress price. This price depression is, of course, more significant for small and medium cap companies than for large cap companies with greater liquidity.
...

Unfortunately, the drama associated with this clash has drawn attention away from the uncomfortable fact that illegal, unsettled trades are a large and growing problem in U.S. equity markets. Those unsettled trades threaten the corporate voting system, the viability of small companies, and market integrity as a whole. Large unsettled trades persist because of loopholes in stock market institutions and apathy on the part of those charged with enforcing existing regulations.

Also a paper (PDF) from the Cato Institute.

And back to Byrne.

I personally don't think naked shorts represent the cause or even a cause of the current situation,

Re:naked shorts

[Artifakt]

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.

Re:naked shorts

[Score Whore]

Yes, it is illegal. And I've not exactly done the research myself, just took what I've read and tried to summarize it. I posted a bunch of links here.

Re:naked shorts

[rohan972]

You can't borrow a car and sell it, why should you be able to sell borrowed stocks? I've never looked into how short selling works, but from what I have read it's always sounded like another legalized scam to me.

Re:naked shorts

[Score Whore]

Yeah. I'm just grovelling for karma. It's not like people haven't done the research and found that phantom shares are created and traded. That loop holes are used to keep from fulfilling trades way beyond the T+3 settlement time. That multiple regulators have admitted that it occurs. Sheesh, it only takes a simple "naked short" on google to find lots of information about the practice. Even wikipedia has mention of how phantom shares can go around and around.

Re:naked shorts

[starm_]

Okay but FTD only occurs when the short seller goes bankrupt. I guess since there is borrowing in short selling it can contribute to over leveraging in institutions such as hedgefunds but it isn't worst than any other kind of borrowing.

For common investors, the broker doesn't allow short sales without them keeping the value of the shares in cash in the account. Trying to manipulate prices by short selling low will only lead to losses from having to buy back higher or pay dividends. Short selling at low prices is doing the opposite of the "buy low, sell high" rule of investing!

Re:naked shorts

[Morosoph]

Cashing in on market inefficiency is the antithesis of capitalism.

Conventional shorting is just a form of arbitage in time. "Cashing in on market inefficiency" actually corrects that inefficiency.

Re:naked shorts

[actionbastard]

What is wrong with your assumption is that few individual investors actually take possession of the shares that they 'buy'. Ninety percent -or more- of shares of stock are held in the 'street name' of the brokerage firm and never pass to the person who actually 'buys' them. Broker 'A' never deals with Broker 'B' anymore in any type of transaction. All trades and sales are done electronically between firms from brokerage inventory of shares that they hold, not the client. The 'closing' date of a transaction is always seven business days after execution, which is why you may be confused by daily trading figures and arrive at the mistaken conclusion that more shares are being traded than actually exist. A share of stock could trade hands innumerable times within the seven days after the originating 'sale', but before its original closing date, giving the 'impression' that there are more shares afloat than have actually been issued.

Another thing you overlook, is that very few individual investors have the liquidity to qualify for naked short sales of stock, even if they have a margin account with a firm. In most cases, a broker will be prohibited from executing a naked short sale until the client deposits sufficient funds into the account to cover the purchase of the shares from inventory or from the street. You can't just call up a broker and say; "I want to open an account and short sell IBM for 20,000 shares.", the 'account representative' would fall off their chair laughing at you before they hung up the phone. Additionally, few firms are willing to allow clients to become leveraged in put options on a stock without sufficient liquid assets to cover any loss. Much of the naked shorting is being done by firms, through their traders, is an attempt to acquire the stock at lower prices than they could if they were dealing with covered put options and these actions are as close to market manipulation as the law allows.

Re:naked shorts

[religious freak]

Dividend yielding majors are rarely the subject of these attacks. New companies with small market caps are typically the victims. The major exception is the recent financial crisis where banks are supposedly falling victim to these acts. It is much easier to naked short a financial institution if they've (for example) slashed or eliminated their dividend to conserve cash - this is exactly what's happening now and why the shorts are attacking financials. (Or so the theory goes)

Re:naked shorts

[Bombula]

Your argument seems to hinge upon the notion that without shorting stocks would be overpriced, and that thanks to shorting they are not. I refer you to every financial bubble in the last century as proof that stocks are quite capable of becoming overpriced despite the best efforts of shorting to keep them 'fair'.

Shorting is just one component in an unhealthy trading system that has little to do with directing investment capital to those ventures with the greatest likelihood of being productive and profitable. Rather, the financial system has degenerated into a collection of gambling rings where high rollers lose and win fortunes trying to game the system.

The stock market was conceived in an era that long predated instant communication and the ubiquitous availability of information. It was originally intended to make capital available to enterprise, though of course there has always been a gambling element to it. But today, with instantaneous communication and information availability, there is no need for a trading market for those who simply wish to invest and divest capital in companies they believe to have strong prospects for profitability. The day trading and manipulation of stock prices and markets are now artifacts of an obsolete, dysfunctional system.

Had the financial markets collapsed in the recent crisis, and if the trading floors were to close permanently, 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. In the end, our economy would probably be better off. And 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 is simply too much money to be made to ever hope that we could close the world's financial markets to all but legitimate, long-term investment, but 99% of the people in the world would almost certainly be better off for it.

Re:naked shorts

[PopeRatzo]

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?

Re:naked shorts

[PopeRatzo]

I didn't know there were any of you left

there are some left, but they're not called "capitalists".

Re:naked shorts

[durdur]

The 'closing' date of a transaction is always seven business days after execution,

It's 3 days, currently. Used to be 7.

Re:naked shorts

[PopeRatzo]

"Cashing in on market inefficiency" actually corrects that inefficiency.

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?

Re:naked shorts

[starm_]

If a company has no potential to issue dividend then it is worth nothing and should be shorted into oblivion.

Note that shorting small growing companies that don't issue dividends yet is equally dangerous because these are the companies which are more likely to grow fast (the market expects them to grow otherwise it wouldn't allow delaying dividends in favor of reinvesting profits). These are the type of companies that could suddenly be worth ten times their shorted value and the shorter would have lost ten times the money he invested.

Re:naked shorts

[religious freak]

But what if you *ARE* the broker and interface directly with the DTCC? Or a large hedge fund generating such a large percentage of the broker's profits, they look the other way?

We're talking big time here...

I've posted a vid below, before you renounce it as obsurd, you may want to watch it. The vid having educated me when I used to think naked shorting was just a bunch of whining, I think it's worth it - though it's about 80 mins.

Re:naked shorts

[PopeRatzo]

When cashflow from the homeowners slowed, the House of CDO cards collapsed.

I thought the credit default swaps were bets against the performance of the underlying instrument. If that's the case, then how would the fact that 3 percent of the mortgages slowed down have brought down the "house of cards"?

I am a bit confused about the fact that these CDOs amounted to nearly $55trillion. Especially since the GDP of the whole world is only about $63trillion. I understand that there's another 50 trillion or so in the derivatives market, too.

Re:naked shorts

[starm_]

Yeah, that's what bank regulations were supposed to be about. They were supposed to limit the amount of leverage or "margin ratio" as you call them. The government has clearly failed here.

want to read something scary? read this:
http://paul.kedrosky.com/archives/2008/10/03/quote_of_the_da_6.html

In fact it is so good I'm going to post it right here:

"Here is the quote of the day:

        "...we and other global firms have, for many years, urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm. The SEC has made it clear that risk-based capital rules can be implemented only when the Commission is confident that firms employing value-at-risk models have robust credit and risk management policies in place."

Translated into English, this testimony from back in 2000 was from someone asking that major brokerage firms be permitted to increase leverage subject to oversight of their wondrous mathematical risk models. The request was agreed to four years later, in 2004, and it helped lead to the meltdown in independent brokers this year.

The speaker? Some guy named Henry Paulson, the then-CEO of Goldman Sachs. I wonder what happened to him."

Re:naked shorts

[starm_]

I dunno, brokers would have to be making major profits from a client to be willing to cover the cost of their bad trades.

That would be analogous to guaranteeing the price of their long positions! That can't be a profitable thing to do.

Re:naked shorts

[verySmartApe]

While true, your comment doesn't address the potential for naked shorters to cause mischief. By selling stock that they don't really have, they artificially increase supply, and if done on a large enough scale, the price drops.

Of course, the shorter didn't change any fundamentals of the company, so you would expect the price to rebound as the shorters are forced to cover their position. But take human nature into account. The sudden price drop can trigger panic selling-- basically the naked shorter is making a bet on their ability to trigger a panic.

The short position wins when the naked shorter buys up the stock at the artificially low price to cover their position. Small companies are the usual victims, since their price is manipulated more easily.

Re:naked shorts

[verySmartApe]

If a company has no potential to issue dividend then it is worth nothing and should be shorted into oblivion.

Yes, and if everyone was perfectly rational, the market would be completely efficient and we would live in a utopia. In the real world, sudden price drops in small companies trigger panic-selling. Investors often move with the herd-- they don't have time to do all the research into a company's fundamentals and make an independent evaluation of a stocks worth. When there is a sudden price drop, all the think is "damn, better cut my losses now, because all these other guys now something is wrong with this company."

There should be regulation to make it exceedingly difficult to trigger panics by naked short-selling. Regular short-selling isn't so bad.

Re:naked shorts

[starm_]

That is not true. Even newbie investors know that stock prices have no inertia and that a sudden drop in price not accompanied by bad news is an opportunity to buy cheap. Panic happens when there is bad news and people are not too sure how to price this news. It is not caused by short selling.

Re:naked shorts

[Froomb]

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.

Re:naked shorts

[ClassMyAss]

Yes, it is illegal.

Well, sort of. Now (as in, since a few weeks ago) it is altogether banned, but historically it has been allowed in limited form. Particularly market makers have usually been allowed to naked short if they are unable to borrow shares, because they are responsible for maintaining liquidity and they were assumed to be legitimate enough to settle up when shares were finally available. And price manipulation by a market maker should normally be very easy to spot, so it was not considered a huge risk to allow it (there were a couple cases where market makers got busted for abusive naked shorting, though).

It probably makes sense to ban it altogether, though, as the marginal increase in efficiency is probably not worth the general sense that there's a loophole for exploitation in the market, whether or not people are actually abusing it.

Re:naked shorts

[Anonymous Coward]

At the first hint of trouble, the hedge funds piled on with the naked short selling of the investment brokerages in trouble. They forced the loss of confidence in the broker going down. The lower the share price, the larger loss of public confidence, starting the run on deposits and funds, thus ensuring the crash of the broker (Bear Sterns, Lehman Brothers, Merrill Lynch, etc.).

Naked short selling also participated in the start of this 2 years ago with the ABX index that was the trading vehicle for sub prime mortgage securities. Shorting that index to 20 cents on the dollar, depressed the market prices that the banks, insurance companies, brokerages, etc used to mark their investment to the market (mark to market).

It was not the absolute cause, but was a VERY large factor in crashing this market. With out naked short selling, the crash could have been contained and managed better with out the credit squeeze that we are seeing now.

Re:naked shorts

[ClassMyAss]

You can't borrow a car and sell it, why should you be able to sell borrowed stocks?

"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.

Re:naked shorts

[TapeCutter]

"That's crap. The price of the shares has no bearing on the ability of the companies to generate profit."

It should however reflect that ability but that is beside the point. What we are talking about in this crisis is the ability of companies to obtain credit and that definitely does have something to do with the stock price, even if you are a bank.

If a bank has trouble raising credit then it's stock price plummets, if a bank's stock price plummets then they will have trouble raising credit. If someone has the financial muscle to short a few big bank to the point where their stocks drop rapidly then credit will freeze because banks will not trust each other. When banks don't trust each other we get a credit crunch, exactly the situation we find ourselves in now.

This is not to say that shorting caused the mess but in these circumstances it's certainly not going to help clean it up.

Re:naked shorts

[soshimo]

Wow, this sounds suspiciously like a pyramid scheme. You oversell at the top so the ones at the bottom receive devalued returns. When did Amway take over the financial market?

Re:naked shorts

[Fulcrum of Evil]

Shorting is just one component in an unhealthy trading system that has little to do with directing investment capital to those ventures with the greatest likelihood of being productive and profitable. Rather, the financial system has degenerated into a collection of gambling rings where high rollers lose and win fortunes trying to game the system.

Get some perspective - it's always been a ambling ring. That's how it started.

Re:naked shorts

[ClassMyAss]

I thought the credit default swaps were bets against the performance of the underlying instrument. If that's the case, then how would the fact that 3 percent of the mortgages slowed down have brought down the "house of cards"?

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.

Re:naked shorts

[Danimoth]

There is a 50% margin requirement on shorted stocks. If I had the million dollars in the bank, you better believe my broker would lend me the 20,000 shares of IBM. If its not on the hard to borrow list I expect any brokerage house would let you borrow as much stock as they can find. If your a big enough player to be doing hundred thousand share transactions, the firm will wish to accommodate you as much as possible. After all, they are earning interest on the cash in your account, lending out your own long positions, and most likely positioning and trading against your own trade.

Re:naked shorts

[Maxmin]

how would the fact that 3 percent of the mortgages slowed down have brought down the "house of cards"?

The underlying mortgages start missing payments, then Moody's drops their rating, followed by the CDOs shedding value, and investors start avoiding that whole class of CDO. Then the CDSes are called to cover the loss, and some are found to have issuers of record with liquidity problems (AIG for example.)

You, the investment bank, holding onto a fat wad of CDS-backed mortgage CDOs, have both net-loss for assets on your books, and broken CDSes.

AIG issued CDSes that it couldn't cover, in the end, and they issued around half a trillion in CDS coverage this decade. And they're just one player in the market. Maybe they were just another over-leveraged financial services firm.

I am a bit confused about the fact that these CDOs amounted to nearly $55trillion.

The CDSes have a face value (max risk) of $50-60 trillion. The underlying premiums are a fraction of that. I don't fully understand CDSes, but if you want an interesting case study in swaps, read about the Orange County, CA, swap bet that bankrupted them. Interest rate swaps are killer.

Re:naked shorts

[Pervaricator General]

They are not really being defrauded unless they choose to sell at precisely the wrong time at an undervalued price

This was his point: liquidity goes down => perceived weakness => overall loss of investor confidence => REAL drop in price. Also,given that the company then has nowhere to go but the credit market for money, they are stuck between a rock and a hard place by an illegal, immoral, and utterly comptable practice.

Re:naked shorts

[Antique Geekmeister]

Yes, it most certainly can be. Company stock can take a nose dive, this can _generate_ a rumor, and the sales can take off. This is another reason it's so difficult to find the people who deliberately create a dive on a stock to manipulate it and short sell it, and so important for the transaction records to be clear.

As an example, if you've never seen what happens as the VP's try to hide their stock manipulations as a company is having trouble and will not make its quarterly or annual goals, you weren't paying attention to the fiscal officers and venture capitalists during the dot-bomb a few years ago.

Re:naked shorts

[Antique Geekmeister]

Nonsense. Many companies pay their employees in stock shares, at least partly. Reducing the value of those shares reduces people's perceived salaries, and encourages the best employees to leave. It also seriously impacts the companies ability to manage capital for buildings, equipment, expansion, pension funds, insurance, and lots of other things that cost money and are very difficult to save up money for without operating as a far, far smaller company and suffering the takeover risks of _that_.

This is first year economics material, bolstered by the experience of many of us in actual private industry. Try working in a job where you get stock options, and see if you don't pay more attention to how these things work.

Re:naked shorts

[Renowned Expert]

You are missing the point. Byrnes is not talking about short sales, where the seller actually delivers the shares. He is talking about naked short sales, where the seller does not bother to borrow shares, thus he can sell as many shares as he wants into the market, up to and beyond the entire float. All the profit in the world would make no difference in this case. The stock will go down.

Re:naked shorts

[JasterBobaMereel]

Shorting : Selling something you only borrowed
Naked shorting : Selling something you don't even have

Why is either legal?

Re:naked shorts

[dubl-u]

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.

Re:naked shorts

[dubl-u]

Your argument seems to hinge upon the notion that without shorting stocks would be overpriced, and that thanks to shorting they are not. I refer you to every financial bubble in the last century as proof that stocks are quite capable of becoming overpriced despite the best efforts of shorting to keep them 'fair'.

You misunderstand him. Shorting stocks reduces the level of pricing error. Nothing can eliminate it. Shorting can't really help an asset bubble, as shorting a stock is generally a short-term, individual move, and bubbles are by definition long-term system problem.

Re:naked shorts

[dubl-u]

The speaker? Some guy named Henry Paulson, the then-CEO of Goldman Sachs. I wonder what happened to him."

I'll just point out that Goldman has done reasonably well in all this, and that's probably because they did have good risk models. Warren Buffett recently invested in them, and he's one of the sharpest value investors out there.

Paulson's statement was broadly correct: what matters is the risk, not purely the leverage, and a fixed ratio for everybody did indeed give a less efficient use of capital.

Where things fell down wasn't the theory, it was the practice. The SEC, which has been a sharp and disciplined regulator for ages, apparently went out to lunch during the Bush administration, and specifically never followed up on this.

For a nice take on the SEC's abdication check out the "This American Life" episode "Enforcers". Not only does it have a great piece on the people tricking Nigerian scammers for fun, but the bit on the lameness of the SEC is very well done.

Re:naked shorts

[Lord Flipper]

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.

No dividends paid by the short sellers. They borrowed the shares, sold them on the open market, money deposited from the proceeds in their accounts (with a minus sign next to it on their statements). Then, when the price falls, of the underlying stock, they buy back the number of shares borrowed, That's the idea, of a short sale, anyway.

Now, when they sold the borrowed shares, if a dividend becomes due, then the buyer gets the dividend from the company issuing the shares. The holders of record are the recipients of dividends and those dividends are paid by the company, not by the previous owners of the stock.

Buyers of shares have no idea they are even participating in a 'short'. Why not? Well, for one thing, the law says you can only initiate a 'short' on an uptick in the underlying stock, meaning: The stock price is on a rise. So, another anonymous buyer of the security is participating in a rising market in that stock. I am dealing in Option contracts that represent the price movement, over time, of a security, not the securities themselves. The market maker simply prices the loaned shares, based on the next transaction in the stock after my order, I never actually see them. The Optiions market runs on the principle that you best against a market only when the most recent transaction in the stock or Index was higher than the previous, and you bet in favor of a rising market only when the most recent transaction was a downward movement in price.

I did Options in the 80s and early 90s, and back then (and still) the term 'naked' was slang for 'uncovered'. I was betting against certain stocks and the market, as a whole, at times. I did not own the S&P 500 Index, so if I sold a 'call' on the S&P, that transaction was naked. The most I stood to gain was the strike price on the Option, which represented, loosely speaking, the price movement up, or down, of 100 shares of the underlying security. As the contract reached expiration it was time to either close out the deal, or, if the stock or Index rose suddenly, to buy back the calls. If the Option was sold as 'covered', it meant I had the underlying stock, and if I wasn't paying attention, a person holding calls on the stock could 'exercise' the call, and I had no choice but to deliver the real shares.

Let's say there is 7 weeks to go on XYZ stock, and the last transaction in the Market, for sale of XYZ was 'up' 12 cents at $100.12, and I decide to sell a 'call' on the stock of XYZ at a $97.50 strike price. I am betting that the stock will be worth, equal to or less than, $97.50 in 7 weeks. So I sell, say 10 calls, representing 1,000 shares of XYZ and pocket $300 per contract ($3000). The most I can gain is my $3000 [If the stock does indeed head south in time]. I'm on a margin account, and as long as I have enough credit i can ride out what I hope are temporary upticks in the XYZ. But if it keeps rising, the price of each is rising out there also, and it's rising fast because holders of those calls, who bought them at lower prices are seeing price reaction based on the XYZ movement in the open market AND the fact that Time is running out for a turnaround in XYZ. If XYZ options are at 8 bucks and I get cute, the holders of the calls can 'exercise them, and all of a sudden I need to come up with 1,000 shares of XYX at over $100 apiece. My $3k deposit, from the sale of the options, is dwarfed by a $100k+ obligation. This is not for everybody, that's for sure.

But I never sold 'covered' options, only 'naked' ones. It was speculative and dangerous, because the maximum profit was the amount collected on the sale of an option, and the potential loss was, theoretically, sky-high if not infinite. In the 'naked' scene you had to pay very careful attention to both price movement in

Re:naked shorts

[Elky Elk]

Since we brought in fiat currency and fractional reserve banking?

Re:naked shorts

[Lord Flipper]

Even newbie investors know that stock prices have no inertia and that a sudden drop in price not accompanied by bad news is an opportunity to buy cheap

That's a good one. Maybe you meant "Only newbie investors" instead of "even newbie investors"

You think buying into a fall in the market is always a good idea?. That's newbie rule 1, and newbie rule 2 is buy and sell on the news. The deal is this: The 'news' comes out, after the fact of a big up or down, not before. Otherwise nobody (led by your fellow newbies) would ever lose money.

Even buying into a sustained sideways market, that is heading down over time, has been likened to catching razor blades falling from the sky. Any one of them won't hurt you all that much, but after a while you bleed to death, anyway.

Brokers, and other salesman, have worked for years to condition people to buy on downward movements. Those brokers need commissions, and the people they've coached? You got it, newbs.

Re:naked shorts

[Richard W.M. Jones]

I'm still not sure I understand why naked short selling is so bad. Perhaps a mild case of plain fraud.

To put it in car analogy terms, let's say I'm a BMW dealership. You walk in and want to buy a particular model of BMW. I don't have it in the showroom right now, but I'm confident I can get it in two weeks, so I take your money.

Two weeks comes around and I haven't been able to source the particular model you wanted.

Now I can give you the money back, and say, sorry, but it didn't work out. And that seems fair enough to me -- a bit unfortunate for you because you didn't get your car, but as long as I was looking for it, it's not fraud. If I really didn't ever intend to source the model you wanted, then it's more like fraud. If I did it to a lot of people, word would get around.

Still, at no point in this did you think you owned a BMW. You might have said you had one on order, and been very excited about that, but if your friend had said "oh you own a BMW, let me see it", then it's plain there isn't one sitting in your garage.

(Enough of car analogies ...)

Re:naked shorts

[rohan972]

That makes sense. I still wont be using it, but it doesn't sound quite so unreasonable now.

Re:naked shorts

[Hognoxious]

The short position wins when the naked shorter buys up the stock at the artificially low price to cover their position.

How does he get that "artificially low" price? Is there some sort of club you have to join, or do some brokers offer buy two get one free?

Short sellers are just betting on a fall. Presumably, someone must be making the opposite bet, or there'd be nobody for them to sell to.

If the price rises, the short sellers get their fingers burnt.

Re:naked shorts

[Hognoxious]

If a company has no potential to issue dividend then it is worth nothing

Really? Not even if its shares are rising?

Re:naked shorts

[EastCoastSurfer]

I'll just point out that Goldman has done reasonably well in all this, and that's probably because they did have good risk models.

Bullshit! GS survived because they have Paulson as the treasury secretary. Paulson let other companies fail from the CDS manipulation, but when the target became GS the government stepped in and banned short-selling (among a lot of other things). It's nice to have your ex-CEO as the most financially powerful person in the world. Even other bankers made note of who the bailout really helps.

Warren Buffett recently invested in them, and he's one of the sharpest value investors out there.

Buffet invested in them for 2 reasons. Based on what Buffet has said it sounds like the government tapped him and begged him to get in the market to instill some confidence. So for his troubles GS (and GE for that matter) is giving him a 10% dividend! Even with those terms Buffet himself said it was risky and I have to paraphrase here...'if a government bailout doesn't get done, GE and GS will be the 2 largest investment mistakes I've ever made.'

Re:naked shorts

[RobBebop]

The only reason this doesn't happen in practice with cars is that finding "the same" car to replace the borrowed one is not necessarily easy

Especially with those pesky Vehicle Identification Numbers!!! I suppose a 2003 White Saab with a scratched out VIN would be the same as every other 2003 White Saab with a scratched out VIN... so just make sure the car you are renting in the first place doesn't have this pesky self-identifying information and your car scam will work beautifully!!!

Re:naked shorts

[starm_]

Should we also make illegal buying and selling stocks at a low price like Pakistan?

The truth is if a company is generating profit the price will rebound and the short sellers can be liable for huge sums. A manipulated market is next to impossible to time, and because of their disadvantageous position (they sold at artificially low prices) manipulative short sellers are probabilistically much more likely to lose money than to gain.

Re:naked shorts

[flitty]

Part of the problem came from the fact that people could buy CDO's against these subprime packages that they did not own.

I heard it yesterday put like this: Tom can get life insurance in case he dies, for a fee. Now, Tom is getting older and his neighbor decides to get life insurance against tom too, betting that Tom will die soon enough to make it worth his investment to the life insurance. Tom's entire town figures out tom is dying, and they all bet in tom's demise. Now, Nobody at the bank actually has to find out that Tom isn't the guy making all of these policies against his life, allowing gambling to run rampant on Tom's Life. When Tom dies, the insurance company pays out all of these policies, which most likely bankrupts the bank, due to their mismanagement of the policies and their 40-to-1 debt ratio they've been allowed to run, ever since that was overturned from the 10-to-1 that was set up in the 30's. The banks claim since they were allowed a 40-to-1 debt ratio, they weren't doing anything wrong. IANAFE (financial expert), but this is my understanding of the problem so far.

Re:naked shorts

[starm_]

Okay, but he will be stuck with huge liabilities when he has to issue dividends or cover his shorts. The people who bought his short sales have no incentive to sell them back to him at a low price because they would lose the potential for dividends for too little money. I certainly wouldn't let go of my shares at a low price while I'm entitled to a nice cash flow of dividends from the short sellers.

Re:naked shorts

[EastCoastSurfer]

If that's the case, then how would the fact that 3 percent of the mortgages slowed down have brought down the "house of cards"?

3% is the default rate of prime mortgages. That 3% is also double what it has been traditionally.

Sub-prime mortgages have a default rate closer to 25%, although the rate acceleration is slowing which means we may be seeing a peak in the sub-prime action.

Where the prime default rate will peak is still unknown. All the facts together are why the CDOs have tanked. No one currently knows what they are worth. The market has said somewhere between 20% - 100% of their original value.

Re:naked shorts

[starm_]

Short sellers are liable for dividends otherwise the concept of short selling would make little sense.

granted this is from wikipedia but:

"If the company distributes the dividend, the short seller is also "short the dividend". This is because he borrowed the stock shares and sold them to another investor. The investor he sold them to expects a dividend. The investor he borrowed the shares from expects a dividend also."

Re:naked shorts

[starm_]

Warren Buffet, arguably one of the best investors there has ever been would disagree with you.

Re:naked shorts

[starm_]

not even. Why would you buy a company that has no potential to make you any money?

Re:naked shorts

[eyrieowl]

since when was the world lacking people willing to take a risk against the odds? some win, some lose, but the possibility to win means there are some who will try, and if they do, it can be doom for a company.

Re:naked shorts

[sesshomaru]

Hmm, sounds like The Producers a classic Mel Brooks comedy. For people who haven't seen it here's the gist, timid accountant Leo Bloom explains to shifty Broadway producer Max Bialistock how he could make money on a flop play. Basically, all he has to do is oversell shares in the play by a huge amount, then when they play tanks, no one will expect their shares of the profits.

Then, much as in the current derivatives market, hilarity ensues.

Oh, also, frighteningly prescient was an episode of Really Weird Tales (an SCTV movie that's hard to find now) about a small town making money on no money down home sales. Why the whole town got rich selling houses to each other! Then those people got rich by reselling the houses to other people in the town. Until, finally, well I won't spoil the ending but it kind of has been spoiled by Congress....

Actually, no one explains it better than my favorite blog, Dr. Housing Bubble

Re:naked shorts

[DavidTC]

And the reason we need to 'borrow' shares would be...?

Shares are abstract instruments of ownerships. They aren't lawnmowers, people don't borrow them to cut their grass.

Borrowing a share is like borrowing a car title without the car, it makes no sense whatsoever except to manipulate the market, to be able to operate as if you have the share without actually purchasing it.

So, yes, ban borrowing shares, period. Or just take shorted shares out of play...all shorted shares should be placed in an 'escrow' that holds them until time is up, and keeps anything from being done with them. (WRT to selling and whatnot, obviously the original owners could still collect dividends and vote until the exchange date.)

People would pretty much stop 'loaning' people shares if those shares were placed in escrow and given away at the end, and it would stop this sort of manipulation of the market where shares are repeatedly shorted to drive down the price.

Re:naked shorts

[mhelburn]

Dr. Byrne has tried to make people aware of this and the conversation was hijacked. Why is this discourse been excluded from mainstream media until we have a crisis that Dr. Byrne foretold. With the reality of this coming out, one can't help but question the motives of those who suppressed the truth.

Re:naked shorts

[Kirth Gersen]

"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?"

Your analogy makes me think you never had kids. Any prudent mom whose son tried to give her that spiel would respond "You're grounded". We should have said the same thing to Long Term Capital Management -- and many others.

Re:naked shorts

[religious freak]

Because normal shorting (though imperfect) keeps a lid on speculative furors, and calls a company's bluff when they talk about how great they are. It's a necessary part of a functioning market. Since they are putting capital at risk, it is perfectly legitimate.

Re:naked shorts

[mea37]

"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.'?"

Well, keep in mind who the two parties to a naked short are:

1) The guy shorting the stock. He knows it's a naked short.

2) The guy who buys the shares from (1). He doesn't know it's a naked short. He doesn't know it's any kind of short at all. He's just buying some shares.

Selling you something I don't have (on the theory I can get it before settlement time) is risky, shady business. If your an honest investor, the "upside" of taking on the added risk (that you won't be able to get the shares in time at a "better" price) is that you don't have to pay someone to borrow their shares (or find a lender at all, I suppose).

Later failing to deliver what I sold is fraud, but it's not like I advertised at time of sale "I'm going to defraud you if this doesn't go my way".

Re:naked shorts

[AlexMax2742]

Wow! Someone who admits that they aren't as smart as they thought they were and admits their ignorance. On the internet no less!

I am not being snide or sarcastic when I say the world needs more people like you. I'd give you mod points if i had any.

Re:naked shorts

[Silentknyght]

Interesting point. Others are arguing that since stocks are so liquid anyhow, that borrowing is easy. But if they're that liquid, why not purchase, except because (a) you don't have the cash and/or (b) you want to manipulate the market. I agree: borrowing should be illegal.

Re:naked shorts

[dubl-u]

Bullshit! GS survived because they have Paulson as the treasury secretary. [...] but when the target became GS the government stepped in and banned short-selling (among a lot of other things)

Do you have any evidence for this? Goldman Sachs was the most highly regarded of the investment banks well before Paulson. And plenty of financial companies were smart enough to stay relatively clean from this, in that they managed their risks a lot better.

A more reasonably narrative to me is the one in in the financial press. They saved Bear because it was sudden, but then let Lehman go because they were worried about moral hazard. Then they saved AIG because of the systemic risk. And then, realizing they were up to their ass in alligators, then went to congress for the bailout authority to calm everybody down.

Based on what Buffet has said it sounds like the government tapped him and begged him to get in the market to instill some confidence.

That sounds more plausible, but I'd also like to see your source for that.

Still, that's exactly what the Treasury and the Fed should be doing about now. A lot of people are scared just because other people are scared, and not because they know much of anything.

That Buffett was encouraged to invest doesn't mean that he doesn't think it was a good idea. It's not like they can push him around. Sure, he was betting on the bailout, but everybody was betting one way or another on a bailout, which is why you saw the 777 point drop when it failed the first time.

Re:naked shorts

[gwjgwj]

1. Collect underpants
2. ???
3. Profit

Re:naked shorts

[lewiscr]

Don't ever assume that the market trades on fundamentals.

People think the market trades on fundamentals? I thought that stopped when Day Trading got big. We're in the glorious new era of marketing for stocks as much as products.

Re:naked shorts

[EastCoastSurfer]

Do you have any evidence for this? Goldman Sachs was the most highly regarded of the investment banks well before Paulson. And plenty of financial companies were smart enough to stay relatively clean from this, in that they managed their risks a lot better.

The only financial companies that have been anywhere near okay are deposit banks. There are no investment only banks left. The last 2 standing were MS and GS. Without the fast intervention of the fed they would have also failed. And finally they chose to become deposit banks, signaling the end of investment only banking.

So GS might have been highly regarded, but they were also caught with their hand in the 30x leverage cookie jar. What I find disgusting is I wonder how many companies GS themselves ruined with CDSs and naked short selling before crying to the fed with the cross hairs pointed at them? We'll never know since the current rules don't force companies to show their short positions.

That Buffett was encouraged to invest doesn't mean that he doesn't think it was a good idea. It's not like they can push him around. Sure, he was betting on the bailout, but everybody was betting one way or another on a bailout, which is why you saw the 777 point drop when it failed the first time.

Buffet was on a phone interview on CNBC. He said that if the bailout didn't happen that buying into GE and GS would be the worst investment decision he's ever made. That tells you a lot. One is says that the gov. was on the phone with him explaining how the plan would help GS (and thus him) and that they really wanted him to get onboard. And two, look at the return he is getting on his risk. 10% dividend on the money he invested plus a buyout upside if they want to purchase the shares back from him.

Still, that's exactly what the Treasury and the Fed should be doing about now. A lot of people are scared just because other people are scared, and not because they know much of anything.

No, the fed and treasury need to get out of the way and let the markets correct. It was obvious years ago we had a problem. Some people in gov. noticed it (Ron Paul comes to mind), but were generally ignored or shouted down. Now we have a large class of assets declining in price with numerous derivatives (iirc, GS created some of the most dangerous ones to own right now) based on the said asset. We have to let these trades unwind before things can start to become normal again. Some people will lose 50% of the value of their house and even more people will lose their jobs. This is what happens when you attempt to prop up prices using gov. intervention. Eventually you can't keep printing money fast enough to keep inflation going.

Re:naked shorts

[EastCoastSurfer]

What are you talking about sir? GS hasn't had a quarter where they lost money yet. Paulson is in Washington, and I have worked at the big banks, its popular among conspiracy theorists to think that there are back room machinations going on, but this is speculation based on absolutely no evidence whatsoever. He talks to the CEO's of all the major financials and there is no indication that GS has received any favorable treatment.

Really? So let all the others fail until the sights turn on GS? If GS was doing so well why would the fed need to shield them?

As for Buffet, I doubt the gov't had any influence whatsoever. The man is known for making deals when he feels there is value- and GS's

He didn't have to look for value. The fed told him that they wouldn't let GS fail and GS promised buffet 10% on his investment. That's the biggest no brainer I've ever seen. What's most amazing about this financial crisis is that these deals used to be in secret. Now they are all mostly out in the open. It's like they (the gov.) don't care anymore. You don't need conspiracy theories when the facts are on CNBC every day.

Re:naked shorts

[dubl-u]

The only financial companies that have been anywhere near okay are deposit banks.

That's hardly the case. I used to work for derivatives traders, and I still have plenty of pals in the industry. The ones I've talked to aren't worried at all. They're certainly irritated that they have to help pay for bailouts of people who are worse risk managers than them, but they aren't particularly worried.

No, the fed and treasury need to get out of the way and let the markets correct.

Correction is swell, and I'm all for it. As a guy who has chosen to sit the housing market out for the last 6 years because I thought the prices were foolish, I'm with you on that. And there are certainly ways people could intervene that would be idiocy.

But there's a risk of systemic failure that goes well beyond what a normal correction would bring. Winding things down gracefully is a lot less traumatic (and a lot less expensive) than doing it all in one go because credit suddenly evaporates. That was the lesson learned in the Great Depression, and although we one day might have to re-learn it, I doubt it will be under Bernanke.

Re:naked shorts

[dubl-u]

You don't need conspiracy theories when the facts are on CNBC every day.

Why would you make it sound like a bad thing that, the government and major capitalists are conspiring to prevent a crash and are doing it openly?

Oh, and anybody who makes it this far should read EastCoastSurfer's "Molly" link. Whoa!

Re:naked shorts

[PopeRatzo]

the government and major capitalists are conspiring to prevent a crash and are doing it openly?

It wouldn't be so bad if they hadn't first conspired to cause the crash and did so secretly.

If nothing else, these greedy freaks should be forced to pay for all the new textbooks and syllabus that will have to be written now that the free market has been shown to be utter rubbish.

Re:naked shorts

[EastCoastSurfer]

Why would you make it sound like a bad thing that, the government and major capitalists are conspiring to prevent a crash and are doing it openly?

I have a problem when companies such as GS are the first ones to say don't regulate us, but then have no problem accepting gov. bailouts. If you want any gov. help ever, then you need to have them involved from the start. Obviously I'd rather the gov. not be involved at all, but this is the world we live in.

Oh, and anybody who makes it this far should read EastCoastSurfer's "Molly" link. Whoa!

Yep, and the guy is still a cop and nothing has ever been done. Talk about a huge injustice to the girl and her family. They were paying out of their own pockets to keep an investigation going, but eventually ran out of money.

Re:naked shorts

[dubl-u]

It wouldn't be so bad if they hadn't first conspired to cause the crash and did so secretly.

I see. And was this before or after they planned the 9/11 attacks?

now that the free market has been shown to be utter rubbish.

Oh, please. I grant you that the free-market fundamentalists are just as crazy as creationists, biblical literalists, Maoists, Randites, astrologers, and the Heaven's Gate wackos.

However, free markets are very effective tools in the right circumstances, especially when well regulated. Sensible people in finance have been bitching for years about the problems that have been building up. See, for example, this 2003 article from The Economist saying that we were in a bubble:

the sheer size of Fannie Mae and Freddie Mac (which at the end of 2002 accounted for 44% of all mortgage debt) could pose a risk to the whole financial system. [...] If the housing bubbles burst, the economic consequences will be much more severe than those of the recent stockmarket crash.

And they've been pointing out this and other risks frequently in the years since.

What we have here is at least as much as a political failure as a financial one. US regulators stopped regulating. Partly because we had idiotic, ideology-driven government. And partly Washington is hip deep in lobbyists and their money. If regulators had regulated and the overseers had overseen, there still might have been problems, but not ones that risks a global crash.

Re:naked shorts

[EastCoastSurfer]

That's hardly the case. I used to work for derivatives traders, and I still have plenty of pals in the industry. The ones I've talked to aren't worried at all. They're certainly irritated that they have to help pay for bailouts of people who are worse risk managers than them, but they aren't particularly worried.

True, and I was mostly talking about the big financials. I have friends who are currency traders and they are doing fine, accept that their leverage has been cut back quite a bit. Currency trading usually relies on that leverage, but they are making it work.

But there's a risk of systemic failure that goes well beyond what a normal correction would bring. Winding things down gracefully is a lot less traumatic (and a lot less expensive) than doing it all in one go because credit suddenly evaporates. That was the lesson learned in the Great Depression, and although we one day might have to re-learn it, I doubt it will be under Bernanke.

Worrying about a GD style meltdown at this point is a little late. Where was Bernanke when FNM and FRE were going to town buying up subprime loans? Where were they when CA, FL, and others had house prices going up 20%/year b/c of not just lax lending standard, but no lending standards at all? Wait, money was being made to the tune of Billions of dollars for all their buddies so it's okay to look away. I'm no economic genius, but it wasn't hard to see years ago what the end was going to be.

Re:naked shorts

[nasor]

But today, with instantaneous communication and information availability, there is no need for a trading market for those who simply wish to invest and divest capital in companies they believe to have strong prospects for profitability.

Sure, there's no need for a stock market if people simply want to invest some money in a company - but without a secondary market for the stocks there would be no way to get any of the invested money back if you think the company is failing, or you simply decide you want to money for something else. You would essentially be locked into an investment forever, with no one to sell your stocks to when you decide you don't want them any more. Note that wanting to re-sell stocks that you purchased from a company is necessarily a sign of greed or that you are trying to "game the system." Many people, for example, will invest in stocks for a few decades while they work and then sell the stocks off gradually to support themselves during retirement. Without a secondary market for the stocks, their money would be locked into the company forever with no way to get it back.

Re:naked shorts

[EastCoastSurfer]

I might have to take my entire savings and dump into GS since they'll most likely be running our entire financial system when this is all said and done. LOL

The department announced that Treasury Secretary Henry Paulson had appointed Neel Kashkari to oversee the Troubled Assets Relief Program and the newly created Office of Financial Stability.Kashkari, a former executive at Goldman Sachs, is currently the assistant secretary of the Treasury for International Economics and Development.

Re:naked shorts

[Lord Flipper]

"If the company distributes the dividend, the short seller is also "short the dividend"

You're correct there. I stand corrected. The dividend is paid by the short seller to the firm that loaned them the stock to sell. I'd forgotten that, but a short seller is working on a short time period, in terms of the deadline for closing out the short sale. I never paid a dividend out because I was timing things. and I was using the options mechanism, so I was participating ONLY in the movement of the stock price, up or down, from the point at which the stock was valued on the Market at the time of the sale or purchase of an option.

What we don't often consider is this, in options: On the date of payment of a dividend on a stock (the ex-dividend date), the price of the stock, technically drops by the exact amount of the dividend. These dividend dates are already factored into the price of the call and put options, BUT, if the stock is moving in price, against the interests of the seller, then the buyer may exercise the options earlier (right before the dividend date). However, the value of the options contract also drops on the ex-dividend date.

when I was working with options we were always cognizant of dividends, not because they cost much, they have little effect, actually on option prices, but because they impact the psychology and 'plans' on the buyers' end. What it all means is that I was never paying dividends to anybody, when using options to participate in the movement of stocks or Indexes, but i would 'shop' for options that included upcoming ex-dividends in their pricing, of course. Like i mentioned yesterday, it all required paying a lot of attention to factors besides my feeling, or beliefs, about underlying values of the company being considered for a short. That goes for before-the-decision to purchase or sell, and every day of the time period where i was on the hook for various options.

I would have to look into straight short sales of stocks, as opposed to Options, in order to find differences in the rules and mechanisms for pricing. I preferred options because of the huge leverage. On a short term deal (options contract, with an expiration date) it was a lot cheaper to spend $150-400 or so to participate in the rise or fall of 100 shares, that it would have been to borrow, or buy, the underlying shares at 100 times the value of one share. very risky, but a much wider risk/reward ratio, also. And at a far cheaper point of entry into the market in the stock.

Again, as far as dividends and interest rates, and anything else that could affect the stock's value... those factors are priced in to the current 'bid/ask' on the option contract, and the effect of that pricing-in (the 'cost' in other words) was compared to my own fair market assumptions. A wide gap meant do not consider, whereas a smaller gap meant: more attractive.

Options are really the way to go, if one already holds stocks, individually or in mutual funds, etc. Because the prices of the options contracts are so closely tied to the underlying values, an investor can use them in two very straightforward ways: To take advantage of a rise in the value of their holdings, without having to close out their positions in the held stocks, OR, to use the option as insurance, by paying a premium, upon purchase for the option, (That premium being the 'most' one stands to lose) that only loses value if the underlying stocks rise. Of course the offset in the lost premium might negate the 'paper' profit in the rise in value of the person's holdings, but the holdings, if not sold, have in fact risen. So, it's like insurance that way.

I love Warren Buffet, too. But he does not look at the market and simply buy into the market 'dips', as was inferred by the person I responded to yesterday. he's knows far better than to do that, because many of us realize that sometimes, these 'dips' are trying to tell us something, and buying into them, based on some sort of broker-advocated 'dogma' can be fata

Re:naked shorts

[julesh]

I understand that there were 30-1 margin ratios in these subprime packages. Why would anyone be surprised at a blowup?

And I trade forex derivitives at a leverage of 100-1. I don't expect to be going bankrupt any time soon.

Leverage is perfectly reasonable and acceptable as long as you take appropriate steps in risk management. Nobody was quite sure how you would go about managing the risks inherent in the kind of deals we're talking about here, which is why they blew up. I mean, you can insure against bad debts, but do too much of that and you'll bankrupt your insurer.

The leverage has little to do with it, except in terms of determining how big the crash was.

Re:naked shorts

[coolGuyZak]

Condé Nast Portfolio mentions the SEC's contribution to the crisis as well, in October's issue. Unfortunately, I cannot recall the name of the article at this time.

Re:naked shorts

[vandan]

free markets are very effective tools in the right circumstances, especially when well regulated

You are confused about what the 'free' in 'free market' refers to. It refers to regulation, or lack thereof. In reality, there is no such thing as a 'free' market - everyone has tariffs and barriers ( or bariffs and terriers as Dubya puts it ), and rightly so. The question is how much do you regulate. The current example clearly demonstrates the answer: not enough at this point.

But this leads to another more broad question about the role of the 'market'. Is it there to maximize profits? Are there more fundamental reasons for it to be there? Are there better ways of achieving these goals? Clearly speculation does nothing to increase real production. And clearly the market doesn't distribute equitably. Here's an example ...

There are a hell of a lot of Americans who have already lost everything, or are about to lose everything. This is a market solution. It's absolutely devastating, but it's the best the market can do. But a more organised way of doing things would be for the government to nationalise the banks. This would largely solve the current crisis ( or at least prevent it from happening again ). But more importantly, the government would be in the position to give people a fair go when they fall behind in their mortgage payments. I think it's interesting ( and worrying ) that Wall Street demands a bail-out when they fail at their own game, but when workers can't pay their monthly payments ( through no fault of their own, mind you ), there is no bail-out. Why does big business get to go directly against their own non-interventionist 'free market' ideology, yet individuals must bear the full brunt of the collapse, with no bail-out of their mortages?

Re:naked shorts

[dubl-u]

You are confused about what the 'free' in 'free market' refers to. It refers to regulation, or lack thereof.

And your source for that is?

As far as I know, and as far as Wikipedia thinks, it has to do with a free price system. That's in contrast to a planned economy, where a central authority sets prices.

. Is it there to maximize profits? Are there more fundamental reasons for it to be there?

It's to maximize efficient allocation of resources.

Clearly speculation does nothing to increase real production.

Clearly? That's not clear to me. Speculators are valuable in a variety of ways. The biggest one is through increasing liquidity, and they also are good at rooting out imbalances and inefficiencies. All of those aid in smooth economic functioning.

And clearly the market doesn't distribute equitably.

Did you expect it to? That's not what it's good at, and it's not what you should use it for. There are other mechanisms that are much better at that, like progressive taxation, and spending that on opportunity-increasing activities, like education, small business loans, and aid to people who for whatever reason can't keep up.

Why does big business get to go directly against their own non-interventionist 'free market' ideology, yet individuals must bear the full brunt of the collapse, with no bail-out of their mortages?

Everybody wants bailouts when something goes wrong. Generally, they shouldn't get them.

The reason to intervene in the markets now isn't for the bankers; they can go fuck themselves. It's to prevent a systemic collapse that would devastate the economy for years to come.

Note that even now with the government actively involved, a lot of bankers are getting the short end of the stick.

Re:naked shorts

[Renowned Expert]

1. Small-cap, non-dividend-paying stocks are especially susceptible to naked short selling, 2. Even if a dividend is paid, a naked short seller can sell 100%, 1000% or more of the float with no intent to deliver, resulting in... (drum roll) a lower stock price. Manipulation 101. 3. Steady dividend payers can be prevented from raising capital if their stock is in free-fall from -- for instance -- naked short sellers manufacturing artificial shares to their hearts' content. Remember, the Reg SHO Threshold Lists document excessive failures to deliver (0.5%, 50%, 100% or more). This is not an exercise in imagination.

Re:naked shorts

[Hognoxious]

On my planet I can buy some shares for 100 bucks and later sell them for 120, and that means I've made 20.

Re:naked shorts

[starm_]

Yes but who would buy your shares for 120 when the company has no potential to make any money? I don't think the stock market is that much disconnected from reality.

Re:naked shorts

[Perky_Goth]

I was expecting to be unmoved by that story, since I know things like that happen frequently everywhere. But it was hard to be cold about it, and my day got a lot sadder for it.

Re:naked shorts

[vandan]

As far as I know, and as far as Wikipedia thinks, it has to do with a free price system. That's in contrast to a planned economy, where a central authority sets prices.

Actually Wikipedia says exactly the same as me:

Free markets contrast sharply with controlled markets or regulated markets, in which governments directly or indirectly regulate prices or supplies, distorting (according to free market theory) market signals

Price is only one consideration. And regulation is the only method ( other than a 'free' market ) to set prices. Why would you want to set prices centrally? Look at our current energy problems. Those who came before us burned all the cheap energy, leaving us the expensive remains ( not to mention environmental issues ). Renewable energy is not yet competitive on a price basis. So why not bump up the price of non-renewable and use the difference to subsidize renewables? That's not a very radical suggestion. In fact it's a prudent one. What's more, if this decision was taken earlier, we could have smoothed our transition into renewable energy sources, instead of being faced with steeply rising costs now. That's called planning. That's not radical. It's sensible.

It's ( the market is ) to maximize efficient allocation of resources

No. It's there to maximize profits. Efficiency of resource use never comes into the equation. Under a free market, whatever will maximize profits is exactly what people will do. If that means horrific waste of resources, then that's what will happen.

Speculators are valuable in a variety of ways. The biggest one is through increasing liquidity

This argument only makes sense under the assumption of a capitalist market. Under a planned economy, there is no need for speculation - the concept of liquidity doesn't exist. I realise this offends capitalist apologists. The point is that the liquidity argument won't phase a socialist at all.

All of those aid in smooth economic functioning.

No. All of those aid in fine-tuning the market to produce the maximum profit. Not in smoothing economic functioning. In fact, it's exact the opposite. Speculation wildly increases market fluctuations, leading to spectacular crashes, as all speculators take their cues from each other, and all decide to sell at the same time. In particular those who borrow and are forced into selling when their stocks drop by X percent - which often happens.

Did you expect it to? That's not what it's good at, and it's not what you should use it for. There are other mechanisms that are much better at that, like progressive taxation, and spending that on opportunity-increasing activities, like education, small business loans, and aid to people who for whatever reason can't keep up.

These are all good short-term improvements on capitalism, yes ... in particular in theory. But in practice, try actually achieving them in a capitalist society. You'll find massive resistance. If you still manage to push ahead, you'll find business fleeing the country to pursue more 'productive' environments.

The reason to intervene in the markets now isn't for the bankers; they can go fuck themselves. It's to prevent a systemic collapse that would devastate the economy for years to come.

Sure. But how do we intervene? Do we give them a trillion dollars and a pat on the back? Do we buy all their shit investments and let them keep all the good ones? Or do we actually invest in them ... ie nationalize them? If it's my money going into it, I want a share in it. I don't see any valid reason to not nationalize failed industries ( or non-failed industries ... but that's a slightly different topic ).

Re:naked shorts

[dubl-u]

And regulation is the only method ( other than a 'free' market ) to set prices.

You can set prices through regulations, but most regulations don't set prices. For example, take nutritional label regulations. Or health code regulation. Ditto car safety laws, building codes, accounting standards, electrical codes, pharmaceutical regs, and the raft of generally helpful rules on treatment and payment of workers. All of these may affect prices, in that they change costs. But they don't set prices; people are still free to charge what they want.

The only big US intervention in prices I can think of are in agricultural products, and I think those are foolish and wasteful. If we want to give money to small farmers, I think we should just give them the money, or make it tied to ecological maintenance, rather than paying them for not growing food, or growing too much and dumping in the third world.

Under a planned economy, there is no need for speculation - the concept of liquidity doesn't exist. I realise this offends capitalist apologists. The point is that the liquidity argument won't phase a socialist at all.

I'm not offended. I agree that in theory, a planned economy doesn't need that. However, even if they work in theory (which I'm skeptical of), they have never worked in practice at scale.

The closest thing we have today to planned economies are either a) the various state-run enterprises in China, or b) the internal structures of some relatively large, old companies. Both are horribly inefficient.

No. It's there to maximize profits.

Your evidence for this?

As a counter-example, consider the selection of market mechanisms for allocation of pollution credits. They weren't chosen to maximize profits; they were chosen to find the most efficient way to cut emissions. They do take advantage of the common urge to maximize profits, but that's not what they're for.

Under a free market, whatever will maximize profits is exactly what people will do. If that means horrific waste of resources, then that's what will happen.

First, profit maximization isn't necessarily bad. In a typical small business, My income is related to the amount of value I deliver to my customers. I subtract from that the costs. So one very common cause of profits is doing something valuable for other people. Another way to increase profits is to minimize the resources used. As far as I can tell, both of those are good behaviors.

Yes, various douchebags try to maximize profits other ways. Often they sacrifice long-term value generation for short-term cash extraction. Or they shift costs inappropriately to other people. These are known problems, and they are often solved through government regulation. And their are unsustainable behaviors, so companies that do too much of that eventually go out of business.

But in practice, try actually achieving them in a capitalist society. You'll find massive resistance. If you still manage to push ahead, you'll find business fleeing the country to pursue more 'productive' environments.

Do you have data to back that? From what I've seen, the citizenry in the west is hugely in favor of investment in education; the only real argument is about the best way to do that. And many businesses flock to be near universities. E.g., Silicon Valley, or Boston. The Small Business Administration lends circa $30 billion a year.

Sure. But how do we intervene? Do we give them a trillion dollars and a pat on the back? Do we buy all their shit investments and let them keep all the good ones? Or do we actually invest in them ... ie nationalize them?

We effectively nationalized AIG, and I'm fine with that. We'll sell it off again later and probably turn a profit on it.

As far as buying mortgage-backed securities, as long as we're buying at something approaching a cur

Re:naked shorts

[Hognoxious]

On what grounds do you assert that it has no potential to make money?

Re:naked shorts

[starm_]

what I'm trying to say is that a company with little or no potential to issue dividend is worth very little and should be shorted since the price would eventually go down anyways.

A company with potential for dividend, these are the ones that justifiably have a price above 0 because they are expected to be profitable at least in the long term, are dangerous to short as the short seller might end up with huge liabilities either because of the price going up, or else because he has to issue dividends. The people who buy at artificially low prices stand to make a lot of money off the back of these short sellers.

For example let say a company trades at 10$ because in the long term the company is expected to earn and distribute about 1$ per share per year. That is a 10% return. If a short seller tries to manipulate the market by short selling a bunch of shares under market prices. Smart people will see that, hey, the shares are now 5$ per shares with a company which is expected to eventually distribute about 1$ per year that is a 20% return. Time to buy!

A few may panic, sell even a little lower and thus profit the short seller but there can't be a lot of those stupid investors that would give away an expected >20% return! And for the short seller to have brought the price down to catch those few stupid investors, he had to sell _a lot_ of shares at a very low price. Selling these shares is a contract to the buyers that says: "I have to pay you whatever dividend the company pays" and in the long term this dividend is expected to be about 1$ per share per year. Only stupid people would want to buy back the shares from the short seller at a low price and forgo their entitlement to the 1$ dividend. Short selling at low prices gets you in a very disadvantageous position.

If the company is not expected to issue a dividend for a long time, it is expected to instead grow in value (its money is reinvested so as to grow its long term potential for dividends even more!), which doesn't put short sellers in a better position. They will have to cover at a probably very high price.

I'm not saying a short seller can't get lucky and make a little money off manipulation if he happens to be perfectly timed and attract a large crownd of stupid investors. However it is much much more likely he will lose lots of money, and that others will make lots of money on his back. All in all, not a profitable practice.

Re:naked shorts

[Hognoxious]

what I'm trying to say is that a company with little or no potential to issue dividend is worth very little and should be shorted since the price would eventually go down anyways

You're right, 100%. I must have imagined the terms "capital gains", "retained profits" and "shareholders' equity".

Re:naked shorts

[Thundersnatch]

That's called planning. That's not radical. It's sensible.

Of course! I mean, after all, a centrally-planned, price-fixed economy worked so well in the Soviet Uniuon and Eastern Europe of the 1980s...

Re:naked shorts

[vandan]

1) Both these ( USSR, Eastern Europe ) are examples of state capitalism, which collapsed due to massive corruption.

2) Simply pointing to one example of central planning that failed in no way proves that all incarnations of central planning will fail.

Re:naked shorts

[Thundersnatch]

Simply pointing to one example of central planning that failed in no way proves that all incarnations of central planning will fail.

Okay, so I challenge you: can you give an example of a centrally planned economy that has not failed miserably?

Free market capitalism is the worst form of economy, except for all the others.

Gee golley Jeepers!

[Creepy Crawler]

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).

Re:Gee golley Jeepers!

[Anonymous Coward]

Dry scienc-y and math-y stuff is most likely right.

It is. And it's actually kind of funny. A particular subject may be safe in the hands of experts for hundreds of years. Disputes resolved through educated discourse and research. Progress being made.

Then all of a sudden the academic topic intersects with a political or religious topic and all hell beaks lose. (Debate and research? Screw you we have talking points! )

Re:Gee golley Jeepers!

[poopdeville]

Well, while that is a sound strategy (more-or-less), the "journalists" are getting their "common knowledge" from places like Wikipedia, and using it to support their interested position.

At least, this is part of what happened in this case. It is an interesting story, and I recommend RTFA. (I know, I know, it's slashdot)

Re:Gee golley Jeepers!

[Creepy Crawler]

There's something wrong with using Wikipedia as a sole source.
There's nothing wrong with using Wikipedia as a starting point in your research.

Re:Gee golley Jeepers!

[danbert8]

This is true of any encylopedia. Just because Wikipedia is generally more verbose and detailed doesn't mean it is no longer a secondary source. You wouldn't cite a newspaper article reviewing a scientific breakthrough for a research project would you?

Re:Gee golley Jeepers!

[BForrester]

"For God's sake. You're in college; don't cite the encyclopedia."
-Jimmy "Jimbo" Wales, founder of Wikipedia

Re:Gee golley Jeepers!

[Ephemeriis]

For Politick, I go to Faux-News for my daily News(R) and CNN for my other News(D).

You're kidding, right? CNN for "News(D)"? I assume that you're implying a left-leaning bias on CNN? I haven't seen any evidence of that in years.

I always find it amusing when politicians complain about the "Liberal Media" because I would actually enjoy some liberal media, but I can never find it. Countdown, on MSNBC, is fun... As is the new Maddows show... But those are a couple specific shows, neither of them on CNN, and I'm not sure if I'd really call them "news" programs any more than The Daily Show.

If I'm actually looking for some real news I have to go with either NPR or an assortment of non-US sources.

Re:Gee golley Jeepers!

[Hyppy]

Newspapers are excellent sources for some topics.

Re:Gee golley Jeepers!

[johanatan]

Wow, now we have duped discussions along with the duped stories!!

Re:Gee golley Jeepers!

[BPPG]

Troll? What's so trollish about...

meh, I'm overdue for a down mod, I'll save my confused indignation for some other time. ;-)

Comment removed

[account_deleted]

Comment removed based on user account deletion

Bryne has more than a couple screws loose

[jbellis]

see e.g. http://web.archive.org/web/20061017204807/www.blogmaverick.com/2005/12/23/this-will-make-a-good-movie-someday-overstock-com/

Re:Bryne has more than a couple screws loose

[maxume]

So does Mark Cuban.

Re:I also read that

[Daimanta]

True, and I have also heard from a reliable source that a large herd of elephants stormed Wall Street being the actual guilty party to the crash.

Re:I also read that

[eagee]

The sad part is that most people will read that and think, "Well, that makes sense."

Re:I also read that

[sakdoctor]

I heard vista is selling really well and customers love it.

Minitrue

[wiredlogic]

Excellent, Minitrue is working as planned. We can now commence with phase three or our diabolical plan.

Re:Minitrue

[bh_doc]

Phase 3, eh? So this was "???"?

Confirms Wikipedia's Malleability

[colganc]

It only can prove not to trust Wikipedia fully: Wikipedia is corruptible and can be manipulated. Both have been known from the start. Not news and not confirming Chomsky.

Re:Confirms Wikipedia's Malleability

[poopdeville]

This case is direct evidence for Chomskian media theory. (As if there wasn't enough already -- Chomsky has compiled literally thousands of incidents)

Why do you think the press would be any different than Wikipedia? Because it is permanent? Nobody cares about yesterday's news anyway. Because you need to be hired to join? Getting hired is easy -- essentially any interested party can join. Because journalists have integrity? I won't accuse all journalists of being disingenuous, but this particular journalist was caught manipulating both wikipedia and the mainstream media.

Certainly, if you let a fox in your hen house, you should expect your dinner to get eaten -- whether the metaphorical hen house is Wikipedia or the mainstream media.

Re:Confirms Wikipedia's Malleability

[crush]

This case is direct evidence for Chomskian media theory. (As if there wasn't enough already -- Chomsky has compiled literally thousands of incidents)

Bollocks. This is just straightforward lying. That has eff all to do with Chomsky and Hermann's analysis of how the media is distorted. On the contrary their theories mostly emphasize unconscious distortion and selection practiced out of the "highest motives" by those selected and self-selected to man the positions of power in our current system. You should read Chomsky and Hermann's original work so that you (or the original article author who is also talking out of his rear-end) do not present misrepresentations of that work. Failing that you could read a short summary such as the following .

Re:Confirms Wikipedia's Malleability

[poopdeville]

Bollocks. This is just straightforward lying. That has eff all to do with Chomsky and Hermann's analysis of how the media is distorted. On the contrary their theories mostly emphasize unconscious distortion and selection practiced out of the "highest motives" by those selected and self-selected to man the positions of power in our current system.

Like how Jimmy Wales and others protected the accused journalist, because they doubted Byrne's motives?

Maybe you should RTFA.

Re:Confirms Wikipedia's Malleability

[marcosdumay]

"Bollocks. This is just straightforward lying."

Not at all, that is just some evidence for Chomskian media theory...

Re:Confirms Wikipedia's Malleability

[ShakaUVM]

>>This case is direct evidence for Chomskian media theory. (As if there wasn't enough already -- Chomsky has compiled literally thousands of incidents)

The problem with Chomsky is that he has close to zero credibility among anyone with any degree of common sense. Maybe his theory on media is right, but I won't bother to read it, because he's been such a colossal nutcase on so many other issues, that it's just not worth my time.

He's the guy, remember, who said that Cambodia was better off under Pol Pot, or that compared with the horrible nightmare that is America, Eastern Europe under the USSR was a "paradise". There's just no dealing with someone who is so fucking deluded as to make a statement like that.

http://www.paulbogdanor.com/chomsky/200chomskylies.pdf

Re:Confirms Wikipedia's Malleability

[crush]

Oh for Christsakes -- the register articles are alleging stock price fixing as part of a _conspiracy_. Completely NON-chomskian. Go read. Seriously.

Re:Confirms Wikipedia's Malleability

[poopdeville]

No, the article was not alleging conspiracy. If you had read it, instead of just the summary, you would see that.

The mechanisms of Chomksian media theory were "exploited" at several turns. Like I said, Wikipedia protected the journalist and his edits, locking them on several occasions. They protected his real identity. The Reg was pretty fair on this point -- Wikipedia on the whole thought that Byrne's motives were suspect and reacted to his moves to ban the journalist negatively. They finally banned the journalist's accounts when it became apparent to them what was going on. Several similar incidents occurred at the WSJ.

Chomsky wrote about the mechanisms by which the media can become skewed. A bad apple in the media made it extremely obvious that Chomsky was right, since he was exploiting them (or rather, using his connections to protect his position) at every turn. What's so hard to understand about that?

Re:Confirms Wikipedia's Malleability

[crush]

No, the article was not alleging conspiracy. If you had read it, instead of just the summary, you would see that.

Yes it does and this reading of it is further backed up by the previous Register article and the joke about black helicopters etc. And more importantly the article specifically alleges _conscious_ and _knowing_ perversion of information by the alleged naked shorting mod. That's a completely different kettle of fish to what Chomsky talks about where participants in the propaganda system have been educated to unwittingly perceive the world through particular models. Give it up. You're talking shite and also smearing Chomsky and Herman with your own paranoid guff. Wikipedia had one bad apple in charge of an article -- this does not compare to an entire structure dedicated to promoting a belief in naked shorting. As a subsidiary note it's irrationalists like yourself and the weirdo who's making these allegations that absolutely _have_ to be filtered by institutions such as wikipedia.

Chomskian!?

[NekoXP]

This is like the worst Chomskian view of Elites manipulating mass opinion

This is the funniest, hippiest statement I've heard in a while. Criminals engaged a financial journalist to modify some wikipedia articles. If they are the Elites, you got a real fucking crazy view on society, mate..

TheRegister really is going downhill. It always was a tabloid read at best but this is just sad.

Re:Chomskian!?

[NoTheory]

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.

Re:Chomskian!?

[BPPG]

I'd mod you intuitive if I had points.

Wikipedia makes an attempt of having no or neutral bias. But turns out to maybe have a community bias. Interesting...

Re:Chomskian!?

[BPPG]

Er, not intuitive, Insightful.

Re:Chomskian!?

[Snowspinner]

In what way? I mean, yes - clearly an edit war went on with nasty and unethical POV pushing on both sides (The article's "world-class" reporting fails to note the extensive sockpuppetry and vicious attacks engaged in by Byrne and Judd Bagley). But... so what? There's not even any smoke here, little yet fire - Wikipedia's view of naked short selling did not reflect Patrick Byrne's view. Byrne, mind you, was a CEO who was publicly accusing a "Sith Lord" of manipulating his company's stock via naked short selling. So, you know, not exactly Captain Credible here either.

But the only grounds the story presents for thinking that this mattered is Byrne's suspicion that some journalists didn't cover the story because they checked and believed Wikipedia. First of all, Byrne has nothing resembling evidence for that. Second of all, how is that Wikipedia's fault? Wikipedia has always been very clear on its own reliability, and I know of no responsible editor of Wikipedia who would advocate its use as a source for journalists.

On top of that, the article presents no actual evidence that the information Weiss was adding was wrong. Yes, it is, at this point, clear that Weiss used sockpuppets to edit Wikipedia. But to date, no evidence whatsoever has been produced that Byrne's claim - that Overstock.com was being manipulated via naked short selling campaigns waged by a "Sith Lord" - was correct, or that, based on the reliable, published sources available at the time that Weiss was editing, the Wikipedia article should have read any different.

The extent of what has been shown here is that there was an edit war over naked short selling a while back, and that both sides acted pathetically during it.

Re:Chomskian!?

[nietsch]

If you had read the article, you would have read that the finger is pointed at a risk assessment agency (that denies any relation with this Gary Weiss). The agency had a very big stake in the subject, as they more or less determined value of the funds that engaged in it, who paid them for that assessment. So you might call them criminals and may be right, but the elite mud sticks on them just as good. Maybe you should reconsider your view on society perhaps?

(nevermind that last bit, nobody will change their holy opinion on the 'net, not when they think they have to defend their values/ideologies/party/clan.)

Re:Chomskian!?

[couchslug]

"I don't know about you, but sustained and concerted efforts to distort a subject should be a firing offense for journalists."

Or at least relocation to an amenable publisher.

Re:Chomskian!?

[NekoXP]

My view on society is that it ticks over just fine as it is.

It's nothing you can really reconsider this way or that way or change it one way or the other. If this company decided to change some Wikipedia articles, then let's consider that if someone actually reading Wikipedia made financial decisions based on it, then this person is as far as anyone else is concerned, a fucking idiot

I would be more annoyed, if at all affected in any way whatsoever, that my financial adviser thinks Wikipedia is a great way to look for things to fill my portfolio.

Re:Chomskian!?

[Admiral Ag]

Those who modded this post up might want to look at who Phil S is (i.e. he's not a neutral observer).

The fact is, that anyone who has seen the evidence knows that Gary Weiss had a conflict of interest broke Wikipedia's rules on numerous occasions and had the support of influential admins (up to and including the odious Wales, who is apparently willing to change one's Wiki bio in exchange for sex.) in doing so. Anyone who looks at the evidence knows that Mantanmoreland is Gary Weiss. The evidence is overwhelming.

As far as Wikipedia is concerned, it does not matter whether Weiss or Byrne was right about naked short selling. What matters is that a small group of corrupt people knowingly abused Wikipedia and still wouldn't admit they were wrong when presented with overwhelming evidence by all sorts of people.

That's the issue here: Wikipedia is corrupt.

Re:Chomskian!?

[Snowspinner]

I'm a Wikipedia administrator - I make no secret of it. But I'm pretty uninvolved in the Mantamoreland incident, except for a general dislike of all sides.

I remain deeply unconvinced, mind you, that Mantanmoreland's version of the naked short selling article was wrong. His tactics clearly were. That the article was? Less clear.

Re:Chomskian!?

[Sockatume]

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.

Re:Chomskian!?

[nietsch]

So what do you care about more, how you think things should be, like people using (un)common sense, or how they really are, like journalists taking wikipedia as a reference/starting point? It was a manipulation of public opinion, not financial advisors BTW. Didn't you call that agency criminals a few posts back?

Re:Chomskian!?

[LotsOfPhil]

I remain deeply unconvinced, mind you, that Mantanmoreland's version of the naked short selling article was wrong. His tactics clearly were. That the article was? Less clear.

Of course you don't understand the article. You are an English grad student...

Re:Chomskian!?

[NekoXP]

Right, and the public are meant to form their own opinions, not read it on the internet, especially not on Jimbo's Big Book Of Untruth. I was trying to point out that it would matter only if financial advisers that I relied on were doing that.

What does it matter what the proles think? Remember, thinking is doubleplusungood.

I didn't call the agency criminals, the summary did.

welcome to the financial system

[speedtux]

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?

Re:welcome to the financial system

[MobyDisk]

I think it is different because the borrowing/lending arrangements have real property as collateral. So the money has actual backing, unlike shorting of stocks.

(I am not an economist)

Re:welcome to the financial system

[Fractal Dice]

How is this different from the trillions of dollars in fake money that are created every year in borrowing/lending arrangements?

For good or ill, taking an asset and repeatedly leveraging it over and over to generate wealth out of thin air and making everyone dependent on everyone else's well-being is the entire foundation of our economic system. Short selling is just a troublemaker critiquing the emperor's frugal fashion sense :)

Re:welcome to the financial system

[Snowspinner]

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.

Re:welcome to the financial system

[evilviper]

to generate wealth out of thin air and making everyone dependent on everyone else's well-being is the entire foundation of our economic system

Uhh, no. It's just the foundation of the stock market. Our economy could get along just fine without any stock market at all. Private investment would do the job just fine, without being nearly as susceptible to fraud.

And I should also point out that this is all a brand new phenomenon. It's been less than 20 years that the stock market has gone so grotesquely out-of-whack, throwing us into several bubble and burst cycles. See: http://www.downside.com/charts/sp500asmall.gif

That's what happens when you change the tax code to eliminate dividends, and make all investors dependent on capitol gains, which requires a lot of finesse, and mostly luck (if not out and out fraud) to make sure you "getting out" at just the right time, when you can still find a bigger idiot with more money.

Re:welcome to the financial system

[Free the Cowards]

It's the same with stocks and a lot of other things. Few companies have anywhere near the assets that correspond to their paper value.

Of course they don't. A company's value is their assets plus their potential for future profit. A properly-priced stock takes both of these into account. Future profit is hard to predict, which is why stock pricing is tricky. But just because it's future profit doesn't mean it's illusory.

Also your example about house values sucks. If somebody prices their house at $110k, then somebody else who's selling at the same time will be able to undercut them to attract buyers. The net result is that, unless supply is very short, the guy who overpriced his house will never sell it.

I'd also love to know what you consider to be "real" money, if this is all fake money. I've yet to find any kind of money that doesn't end up being fake if you dig into it deeply enough. Even gold, the standard that everybody loves to hold up as being "intrinsically valuable" is just a soft, visually pleasing metal with no inherent worth outside of certain industrial processes. If it weren't so rare people wouldn't even care about it.

Re:welcome to the financial system

[Detritus]

That's not why magazine subscription prices are cheaper than newsstand prices. Magazine publishers are not in the business of selling magazines, they are in the business of selling advertising. Advertising prices are largely determined by circulation and demographics. Advertisers are interested in the subscriber base, which is a known quantity, not some random person buying a copy at a newsstand. The high price at the newsstand is largely due to distributor and retail markups.

Re:welcome to the financial system

[huwgently]

to generate wealth out of thin air and making everyone dependent on everyone else's well-being is the entire foundation of our economic system

Uhh, no. It's just the foundation of the stock market.

Er, no. What you're describing is called "speculation", or, to use another word, "gambling". The reason the stock exchange was founded was to allow companies to raise capital in order to set up or expand operations. Too bad it's become synonymous with speculation and/or "getting something for nothing".

Re:welcome to the financial system

[TerranFury]

And I should also point out that this is all a brand new phenomenon. It's been less than 20 years that the stock market has gone so grotesquely out-of-whack, throwing us into several bubble and burst cycles. See: http://www.downside.com/charts/sp500asmall.gif [downside.com]

A friend of mine noticed this when he needed to do a project for an engineering course in applications of the Fourier and related transforms. He did some very simple work with the short time Fourier transform, and saw that the high frequency content of prices in more recent periods (last 5-10 years) is much higher than that of earlier periods. Presented graphically, it jumped right out at you!

Re:welcome to the financial system

[Snowspinner]

That's really just the same reasoning as I provided running in the other direction.

Regardless, magazines would be hard-pressed to sell subscriptions at newsstand prices.

Re:welcome to the financial system

[wik]

Can you or any other economist explain the SF Chronicle?

I gave them $15 in March and they haven't stopped delivering since. I've begged, I've pleaded, I've mailed them 6 times, I've made my account inactive, I've told the bastards on the phone that I don't want to restart my subscription because it's still coming, goshdarnit! I'm considering moving just to thwart them. Please, just make it stop!

Re:welcome to the financial system

[rho]

Even gold, the standard that everybody loves to hold up as being "intrinsically valuable" is just a soft, visually pleasing metal with no inherent worth outside of certain industrial processes. If it weren't so rare people wouldn't even care about it.

And that is why you fail.

A pile of beans is wealth. A unique counter can be a stand-in for wealth, i.e. money. A promise to provide future beans of a fixed amount is an IOU, worth exactly as much as the paper and the entity which backs it. This is why government IOUs are relatively stable. They have some degree of worth, with an entire nation behind it. The paper is still worth the same, though.

You know that phrase you hear, "past performance is no guarantee of future results"? You should study long and hard on why they say that.

Re:welcome to the financial system

[Artifakt]

I'd say: at the start, you are buying an obligation for them to send you those magazines, but the obligation converts, at 1/12 of the total each month, to actual possession of those magazines. So you're correct, what you are really buying isn't those future magazines, but that's because by the time you take delivery, that magazine is a present magazine, not a future one.
      That's the point about future debt having value. Some future debts can be described, in terms of what will likely happen as the future becomes the present. In most cases, there are many reasonable and knowable limitations, i.e. overproduction of pork may decrease the expected value of those pork belly futures. The more limitations on our knowledge that cannot be predicted, the less value can be estimated. That ties into what you are saying about fraud - person X buys as though the question of whether person Y will have the stock to sell is settled, but in fact, it's another one of the uncertanties.
      But, people get tax breaks for long term capital gains because they are investing. If the overall uncertanties in investing make it effectively just gambling for X and Y is lying about those uncertanties, it doesn't really matter which of them makes money (although it's obviously likely to be Y, at least in the long run). If X 'wins' he gets a break not for wise investing that presumably creates markets, values and jobs for the rest of us, but for being lucky. Y's profits come from being crooked. It's not just the fraud that makes that wrong - there's no advantages to the rest of society to give breaks based solely on luck either.

Re:welcome to the financial system

[Free the Cowards]

I'm sorry, did you just quote a section of my post, criticize it, and then go and say something utterly irrelevant to it? I mean, I talk about how gold is not intrinsically valuable, and you go and talk about beans and IOUs. How does this make any sense? Whatever point you were trying to make is utterly lost on me.

Re:welcome to the financial system

[Gorobei]

Um, given the US transitioned from quoting in mostly $1/8s to quoting in pennies during that time period, that is really not very surprising. Prior to that, the 12.5 cent tick size acted as a low-pass filter.

Re:welcome to the financial system

[DerekLyons]

to generate wealth out of thin air and making everyone dependent on everyone else's well-being is the entire foundation of our economic system

Uhh, no. It's just the foundation of the stock market. Our economy could get along just fine without any stock market at all. Private investment would do the job just fine, without being nearly as susceptible to fraud.

Here's a free clue for you - the stock marker is private investment.

Re:welcome to the financial system

[TerranFury]

Interesting. I doubt he knew that. (Obviously, I didn't.)

Re:welcome to the financial system

[evilviper]

No, it's not.

http://www.investopedia.com/terms/p/privatecompany.asp

Re:welcome to the financial system

[Free the Cowards]

Yes, don't bother to explain anything or be coherent, just act like an asshole. It's what everybody else does!

Re:welcome to the financial system

[Alpha830RulZ]

You are incorrect, and are misinterpreting the investpedia article. The stock market, or more precisely, the issuance of stock shares for purchase, is exactly private investment. It's transferring money from individuals and other non-governmental organizations, to companies in exchange for an ownership interest in the company. It's merely a finer grained transaction than you buying the whole company. You can do the same thing without a stock exchange, but it's much more unwieldy, which is why the stock exchanges have existed for 100's of years.

Private investment is usually distinguished from public investment by governments. The source of the invested wealth is non governmental people and organizations. Public investment is funded out of taxes and other assessments.

Re:welcome to the financial system

[drew]

While I lack the Photoshop skills to pull this off, one could easily rotate that pink line counter clockwise just a couple of degrees, until the peak in 2000 just barely pokes out the top, similar to the way 1982 is currently poking out the bottom. If you do that, then instead of a six year bubble poking out the top between 1997 and 2003, you get a ~6 year dip dropping out of the bottom from the late 1970's to early 1980's, which I think many people alive at the time would agree is reflective of reality. If you look at it that way, 2000 was a bit above the high end of the normal range, before the market corrected and took us right back into the middle of the normal range.

Without seeing any numbers behind their chart (is that actually a statistical regression line? It sure doesn't look like it to me) who's to say which interpretation is right, and which is wrong?

Re:welcome to the financial system

[evilviper]

Private investment is usually distinguished from public investment by governments.

Only if, for some reason, you're reading some entirely different context into it...

Re:welcome to the financial system

[evilviper]

one could easily rotate that pink line counter clockwise just a couple of degrees, until the peak in 2000 just barely pokes out the top,

It doesn't work. If you rotate it anymore, you'll have entire decades falling out the bottom, UNDER that median line, and it look very OBVIOUSLY wrong. 75-90 is just barely staying on the bottom edge.

Of course you could fudge it, and widen that pink line, but that would be pretty obvious, and also wouldn't hide the bubble, which stands out far more than any other peak.

But, of course this is all hypothetical.

You can find a bit more about that chart here: http://www.downside.com/news.html See 2002-06-24

Re:welcome to the financial system

[bradley2j]

You have it exactly backwards. We do need a stock market and privately traded companies are subject to a lot less regulation regarding transparency then publicly traded ones. According to William Bernstein an efficient capital market is essential to economic growth.

I don't see what's brand new. What makes these recent shenanigans different from the ones that caused the stock market crash of 1929?

You're blaming the wrong market anyway. It's the credit markets that have run amok and caused this crisis. Unregulated, private trading in the credit market. Have a listen to this podcast.

Re:welcome to the financial system

[aproposofwhat]

One word - fungible.

Gold is what it is - an item with restricted supply that can be recycled into different forms and is shiny and desirable.

To take your assertion seriously, nothing at all would have any intrinsic value - all value is in the eye of the purchaser.

The whole problem is completely entwined with the idea of value - it was the CDOs that were overvalued because of faulty risk assessments that led to the current crisis, and at a deeper level the process of allowing banks to create imaginary value based on lending a multiple of their holdings is to blame.

Re:welcome to the financial system

[Reality Master 101]

I gave them $15 in March and they haven't stopped delivering since.

Send them a certified letter (also documenting all the times you've called), and then enjoy your free newspaper if they don't stop again. If they send you a bill, then them a copy of your certified letter that you sent. If they continue harassing you, take them to small claims court.

Re:welcome to the financial system

[evilviper]

You missed the 19th century. Every other decade had at best a bad recession

Yes, but that was way back when the US Fed had practically no mechanisms available to them to regulate and balance out the stock market (or the economy as a whole), so it's an entirely different and non-comparable situation than the past ~70 years.

Re:welcome to the financial system

[Free the Cowards]

I wish you people would take the time to explain your point, instead of just skirting around the outline and assuming I already know what you mean. I mean, if I already know your point, why bother to reply in the first place? Elaborate and actually give me the details of what you're talking about. I have no idea at all what you mean by "One word - fungible." I know what "fungible" means, but I don't know what kind of point you're trying to make with it.

You're wrong about inherent value. There are plenty of things with inherent value. Food, for example, is inherently valuable because it sustains us. But food is a terrible choice for a monetary system because an individual only needs so much of it, and it mostly doesn't keep.

So instead of "keeping score" with the stuff that has intrinsic value, we use other things for money. Gold was the material of choice for a long time in many places because it's rare and impossible to fake. Many people confuse this with having intrinsic value, but being rare does not by itself confer value. For example, Bismuth is less common than gold but considered to be far less valuable looking at market prices.

But it's true, aside from certain things like food, water, and housing, nothing really has intrinsic value. It is all in the eye of the beholder. (And most housing value is too; the intrinsic value is far below the market price in most places, because the value people place on housing is often greatly tied up in aesthetics and location.) And I'm not sure why you find that to be so ridiculous as to use it as proof that I'm wrong. Why does there have to be intrinsic value in the world beyond the basics? Why does there have to be an intrinsically valuable material to base our money on?

Re:welcome to the financial system

[DerekLyons]

You confuse "privately held" with "private investment". The two aren't the same.

Re:welcome to the financial system

[nasor]

Private investment would do the job just fine, without being nearly as susceptible to fraud.

And what happens when I want to sell some of my "privately invested" stock? Perhaps, say, because I have been accumulating a stock portfolio over my working life and am now planning to slowly sell it off to support myself during my retirement?

Re:welcome to the financial system

[CTachyon]

The boom-bust cycle has nothing to do with the stock market. The stock market and boom-bust cycles are both far older than merely 20 years; Marx was complaining about the boom-bust cycle in the mid-1800s.

According to the Austrian School of economics, the boom-bust cycle is caused by inflation and fractional-reserve banking. (1) The Fed cuts interest rates to stimulate the economy. (2) Banks borrow more cash from the Fed. (3) Banks loan out 10 times as much cash as the amount they just borrowed from the Fed — maintaining a 10:1 fractional reserve. (4) Businesses see easier loans and lower interest rates, so they invest in more equipment in anticipation of future growth. (5) The manufacturers of the equipment in Step 4 profit, so they pass some of that on to their workers. (6) The workers from Step 5, happy with their current savings, spend their new profits. (7) The increased consumer spending increases investor confidence, driving up the stock market. (8) The extra money from Step 6 cycles through the economy a few times, driving up prices and making the hidden inflation from Step 3 become obvious. (9) The Fed hikes rates to "cool off" the economy and "fight" inflation. (10) The higher prices make consumers realize that their current savings aren't worth as much as they used to be, so they cut back on spending and save more. (11) The sales expected in Step 4 fail to materialize — at least, not to the degree expected — but interest rates are now rising, so the equipment bought during the boom turns out to be a money-losing bad investment. (12) Stocks crash as investors pull their money out of the businesses that got pinched by inflation. (1) The Fed cuts interest rates to stimulate the economy....

If the government throws money at the problem, e.g. by passing a $700 billion bailout without raising taxes by an equal amount, the result is more inflation. The extra spending might trigger another boom that temporarily hides the bust, but the hike in inflation risks a crucial third transition in the financial reasoning of consumers: instead of alternating between "wow, I have lots of money" and "wow, my money isn't worth much", the risk is that consumers will perceive that inflation is happening at a fast enough rate that cash is dangerous to own. The result is that consumers spend everything, including their savings, in the hopes of buying durable goods that they'll be able to resell or barter later. This is hyperinflation, which is where Germany went after World War I and where Zimbabwe is today... and it looks increasingly like the US dollar will go there in the not-too-distant future, especially if the FDIC runs out of cash-on-hand like they're in serious danger of doing right now.

Re:welcome to the financial system

[julesh]

to generate wealth out of thin air and making everyone dependent on everyone else's well-being is the entire foundation of our economic system

Uhh, no. It's just the foundation of the stock market.

Not really, no.

Look into the difference between M3 and M0 money supply. The gap between them is effectively wealth that is generated out of thin air by leveraging, and is the vast majority of money in circulation today. M3 is the total amount of money everyone thinks they have; M0 (approximately 5% of M3) is how much money there really is.

This has nothing to do with the stock market, and everything to do with banking and credit.

Re:welcome to the financial system

[evilviper]

And what happens when I want to sell some of my "privately invested" [...] to support myself during my retirement?

The greatest myth of the stock market, and a very recent one, is that you NEED to sell off stock to get value from it. That's just playing a pyramid scheme.

Re:welcome to the financial system

[nasor]

Obviously you can also make money from dividends, but at some point most people will want to sell their stock to recover all (or at least a large chunk) of their initial investment value.

Re:I also read that

[_Sprocket_]

Elephants are an expanding computing market.

more on Gary Weiss at Encyclopedia Dramatica!

[toby]

Mantanmoreland

Re:more on Gary Weiss at Encyclopedia Dramatica!

[julesh]

'Cause, of course, we should all implicitly trust an anonymously-written site with adverts for "adult dating" sites plastered all over it.

(ob. wiki sarcasm)
And you realise you've done it now... we can't link to slashdot on wikipedia any more, cause you just linked to an "attack page". :)

Excellent video on naked shorting

[religious freak]

For those that are interested in exactly what naked shorting is, here is an EXCELLENT explanation of what it is and why it's bad. I believe this is Patrick speaking on the topic. I highly recommend it for anyone interested in the topic, stocks in general, or the financial crisis we're paying $700B for, if you're willing to spend an hour or so learning about it. It gets into the nuts and bolts technicalities and doesn't question the viewer's intelligence. (I'm not affiliated with it in any way, but was simply impressed with it when I watched it a year or two ago)

http://www.businessjive.com/

Re:Excellent video on naked shorting

[Score Whore]

One thing to keep in mind is that naked shorts are not the cause or even the proximate cause of the financial mess we're in. Failure-to-Deliver of shorts should always involve prison time and de-licensing of the broker involved. But the financial crisis has roots all over the economy. Everything from ridiculously low interest rates from the fed to exotic mortgages to big money poker / speculative credit default swaps to a failure to enforce regulations to the US negative savings rate to an over reliance on debt for almost all business transactions, they are all contributors to the problem. But naked shorts have little to do with the problems in the financial industry.

Re:Excellent video on naked shorting

[FooAtWFU]

So where's the explanation of why it's good and useful enough (and infrequently-enough abused) that it hasn't been banned from the get-go?

Now, it's not the horriblest thing in the world to ban it, but one must consider the price of doing so. Naked shorts provide the market with additional liquidity. When it's not being abused, this is useful.

Re:Excellent video on naked shorting

[religious freak]

Naked shorting is and always has been illegal. It is difficult to enforce, because you've got to show someone's intention - so my guess is that the SEC doesn't even bother.

Naked shorting sucks monetary liquidity from the market, it does not provide it.

Re:Excellent video on naked shorting

[religious freak]

I agree completely. Though, I think it _may_ have played some kind of role in bringing down the shares of the financial brokers faster than anyone thought could happen, causing ripple effects throughout the economy and the massive margin calls we're seeing. Though I admit it's just a theory and could be wrong. The actual root cause was likely cheap money and lack of oversight.

Re:Excellent video on naked shorting

[khallow]

Naked shorting is and always has been illegal. It is difficult to enforce, because you've got to show someone's intention - so my guess is that the SEC doesn't even bother.

That doesn't make it very illegal, does it? I think this is another example of where the SEC has gotten too intrusive in markets.

Naked shorting sucks monetary liquidity from the market, it does not provide it.

No. It provides liquidity just like any other trading or placement of book orders in markets.

Re:Excellent video on naked shorting

[religious freak]

I agree that it is about as illegal as anti-sodomy laws in Oklahoma (or whatever state(s) that's illegal in). If you don't enforce the laws, you're still breaking the law, just no one cares. The fact they have not enforced this, despite obvious abuses illustrates the SEC's suckatude.

But you are wrong about the liquidity issue. How does someone taking money from a buyer and issuing an IOU increase liquidity? A system is "more liquid" when money flows into the system, not out of it.

Re:Excellent video on naked shorting

[religious freak]

whoops... :s/buyer/owner

Re:Excellent video on naked shorting

[khallow]

A system is "more liquid" when money flows into the system, not out of it.

Ah, that's a difference in semantics then. For me, liquidity measures the ability of a trader to trade an asset near the current market price. Selling an illiquid asset means either the trader takes considerable time to get the market price or they sell at a discount. So from my point of view, have shorters in your market just means you have more trade activity and hence get a better price for trading the stock.

Re:Excellent video on naked shorting

[julesh]

Though, I think it _may_ have played some kind of role in bringing down the shares of the financial brokers faster than anyone thought could happen

Probably not, no. An investor taking a short position actually has less effect than an existing owner selling (due to the fact that the short seller must then buy shares to cover their deal, thus limiting the effect, and a sensible investor will try to cover while the stock is liquid and on its way down, not after it reaches bottom).

So?

[glwtta]

Encyclopedias aren't for current events, nything related to current events on Wikipedia can be safely ignored.

Re:So?

[TubeSteak]

Encyclopedias aren't for current events, nything related to current events on Wikipedia can be safely ignored.

"Naked short selling" isn't a current event.
It's a technical term with a definition.

The problem is that certain people were fucking around with that definition and lazy individuals (journalists) didn't consult with anyone who would have pointed it out.

Re:So?

[StrawberryFrog]

Encyclopedias aren't for current events, nything related to current events on Wikipedia can be safely ignored.

from TFA: "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."

Re:So?

[glwtta]

Ah, my bad, this makes sense then.

Re:So?

[eennaarbrak]

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."

Well that's the point of the article, not so? That journalists (the real ones that are supposed to be full of integrity etc) are making calls on what to publish based on what is written in Wikipedia. Am I the only one that finds it hideously scary that one site can have this much control over the conventional media?

WIki Anonymity = Good

[BoldlyGo]

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.

Re:WIki Anonymity = Good

[GaryPatterson]

I don't agree about anonymity being a good thing in this case. Yes, people can track you down, but currently I have the exact same 'qualification' as any expert when editing a Wikipedia article.

Now that may be fine if I'm an enthusiastic layman, but what if I'm a crank with lots of time to spare? I can edit again and again, create new accounts using other IP addresses (public libraries, workplaces, homes of friends, WiFi hotspots, etc) and keep on editing an article to ensure my point gets across. Or I can be more subtle, as the article alleges Weiss to be. I can use my anonymity to lie and influence others to believe that lie. I can have multiple accounts supporting my lie.

In short, anyone can distort Wikipedia and that's a fundamental weakness. Paradoxically, it's also the greatest strength of Wikipedia. It's a funny old world sometimes, eh?

As for people relying on Wikipedia - it may be a good starting point, but maybe it's not. If I didn't know much about a subject, the articles could lead me (through perfectly valid references) to all sorts of crank websites or books that completely distort the subject.

I maintain that it's a terrible source for anything, and that anonymity is the cause of that.

How ironic...

[adamchou]

That according to wikipedia, Gary Weiss is an investigative reporter who unraveled the trading scandal at saloman brothers but here he is, involving himself in his own little scandal.

But then again, this is wikipedia. Maybe he edited that in himself.

Re:How ironic...

[WriterJudd]

Wrong. He wrote the entire article himself. Look at the article history. Gary Weiss is Mantanmoreland, Lastexit, and 70.23.245.232 And yet, believe it or not, those who attempted to restore some reason to this madness were the ones who were permanently banned from Wikipedia (myself included).

Re:How ironic...

[whoever57]

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.

Re:How ironic...

[gnasher719]

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.

Re:How ironic...

[Renowned Expert]

I got banned too, by georgewilliamherbert who claimed I was a sockpuppet. I'm not. But I did take on Mantanmoreland for a few weeks. When he hurled up the GW defense of NSS as an obstacle to pump and dump, I told him GW was in my opinion "an imbecile, a crook or both." I am quite pleased to find I said that to his face. hahahahahahahaaaaa

Re:How ironic...

[Snowspinner]

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?

Are you suggesting I go write my dissertation? Sir, you impugn my honor!

What, exactly, is the evidence that the current financial crisis is due to naked short selling?

Re:How ironic...

[Achromatic1978]

Come on, Phil, you've painted yourself as "impartial" and neutral through this. Weren't you one of the last people (were you ever actually convinced?) to finally realize that Mantan was socking? Kinda hard to maintain neutrality in that situation. Both sides were socking, but you've not said thing one about GW's doing of this, but plenty about Judd's.

Re:How ironic...

[WriterJudd]

Fair enough. Having interfaced with Merkey personally, I'll be the first to admit that he's got some extreme beliefs. Yet, on this topic, the things he told me are consistently borne out by external, objective facts. Jeff told me Jimbo claimed that in return for Y he would do X and, indeed, Jimbo did X. Normally, that would seem a little extreme, but in the wake of the Rachel Marsden situation, it seems rather consistent. Still, I can understand where you're coming from.

Re:How ironic...

[whoever57]

If there are verifiable facts that support Merkey's claims, then I might start to believe them. However, I would be extremely careful to ensure that all his claims are verified. Using your example above I would want proof of causality -- in other words, proof that Jimbo did X BECAUSE Merkey did Y.

What amazes me, though is that there are still people in the WP community who think that Merkey can be a valuable contributor and not be a massive disruption to the WP community. I have to note, however, that I have a lot of distain for the WP community.

Re:How ironic...

[julesh]

Now the facts are: Naked shorting has cost the US economy billions and billions of dollars.

Evidence?

Mathematical models suggest that naked shorting causes a short-term drop in prices, followed by an increase. This allows naked shorters to make a quick buck at the expense of more traditional investers, and may be regarded as somewhat unfair, but it doesn't actually cost the economy anything.

Re:How ironic...

[makomk]

Yeah, but the thing you have to be careful of about models is the assumptions used. With a naive model, you'd probably get a result like that. However, take into account factors other commenters have suggested, such as loans secured by stock, inability to get finance due to perceived risk based on stock price fall, and automated or manual sell-offs by other investors, and you might get very different results

Please, please read the fucking article

[Anonymous Coward]

TheRegister really is going downhill. It always was a tabloid read at best but this is just sad.

Please read the article, because there's no mention of 'Chomskian' or 'Elites' in there. In fact, it's a really great piece of investigative journalism. However, it seems the person submitting it to Slashdot, and the editor, were creaming their pants so hard that they couldn't resist a liberal heaping of sensationalism.

If anything it's Slashdot that's going downhill!

Re:Please, please read the fucking article

[Snowspinner]

No. It's not a great piece of investigative reporting. It's a shit piece of investigative reporting that is held together by insinuation at several key steps, and omits details unfavorable to the argument it's trying to make at other key steps.

Let's go into detail.

"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.'"

This is a serious accusation of editorial malfeasance at another newspaper. No reputable publication would print this without a corroborating source. The lack of any detail whatsoever - and the fact that this is, in and of itself, a wildly bigger claim than any of the stuff about Wikipedia makes it clear that no corroborating source exists. This is Byrne making outlandish claims that are being reported without comment, and endorsed by the Register, which goes on to say "The Journal never changed its stance."

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. 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.

Well, no wonder. Byrne's claim was always that Overstock was being manipulated - by a specific individual he claimed to know the identity of. That's a far cry from "naked shorting can artificially deflate stock prices." But the article treats them as equivalent claims.

Roger Schneider had recently fired his brother from the Ramsey, New Jersey Nationwide office, and he was sitting on Floyd's work PC - which was packed with several thousand email messages. Patrick Byrne soon paid Roger Schneider a visit, and Schneider gave him the machine. Byrne offered $10,000 in return, but Schneider declined.

This is the extent of the hard evidence presented. Now, as someone familiar with Wikipedia who has looked at the situation, I'll note, I'm wholly convinced Mantanmoreland was using sockpuppets against Wikipedia policy. I'm agnostic on whether he's Gary Weiss, but that's more because I dislike picking into editors' real life identities than anything else.

But this is not evidence. The "investigative journalism" that Byrne is praising here is BYRNE'S OWN ACCOUNT OF BUYING A PC WITH E-MAIL RECORDS ON IT! That's not investigative journalism! That's "Hey, I magically got these e-mails, do you want to report on them?" What steps did the Register take to verify the authenticity of the computer and the e-mails? Did the Register get access to the e-mails on the computer Byrne obtained, or were the e-mails forwarded? Did they get the original e-mail files, or screenshots? All of this is hugely material, and completely left out of this "investigative" piece, leaving it as Byrne reporting claims to the Register, then coming to Slashdot and praising the investigative prowess of the Register in repeating what he said to them verbatim.

"Now, admittedly, we - being Wikipedia as a whole - should have listened to Judd in the first place, but there was a long time where Judd's behavior was counter-productive."

Understatement of the year, but detailing the appalling tactics used by Bagley and Byrne on Wikipedia would undermine the Register's point.

The Register has also reviewed emails in which SlimVirgin indicates that she was a classmate of Byrne's at King's College, Cambridge in the late 80s.

What? Were these emails from the same computer? Or is this the e-mail that Bagley already has posted to antisocialmedia.net about this- an e-mail that's to Bagley, from Byrne, and so continues to not elevate this

Re:Oh give me a break

[Nutria]

made active efforts to out the identities of numerous Wikipedia editors

Good for them! Anonymity is the antithesis of trustworthiness.

No WR? disgrace

[huagfui]

No Wikipedia Review link??? Disgrace! http://wikipediareview.com/?showtopic=20558 ^ Where the info originally came from.

Re:No WR? disgrace

[dtobias]

There was a time when the ruling clique of Wikipedia would ban anybody who dared to link to that site.

Nothing too much wrong with naked shorting

[A Pressbutton]

... as long as it is carried out in public.
Very carry on :)
More seriously, one of the issues to date is that no-one knew what positions were taken in a stock by everyone else.
IIRC the Australians banned it a few years ago partly because it turned out short sellers had 'sold' 3 x as many shares of a mining company as actually existed, causing chaos as settlement date approached.

So I asked in #wikipedia on Freenode

[Kligat]

[17:03] http://news.slashdot.org/article.pl?sid=08/10/05/201205
[17:03] What say you, Wikipedia?
[17:04] I say you're a nutjob conspiracy theorist on the order of moon landing disbelievers and catholics.
[17:05] I also say that it would be fucking awesome for wikipedia to be able to destroy the economy.

so there you go

Is anyone surprised?

[johndmartiniii]

Well, I am!

Wait, no I'm not. We all knew this was coming.

Et tu, Wikipedia, et tu?

Ppffft.

long-time sock-puppeteer at Wikipedia

[toby]

As this Incident archive shows in excruciating detail. Scroll down 20% of the page for the Securities fraud angle.

Re:Oh give me a break

[Snowspinner]

Wikipedia doesn't warrant its information on the quality of its editors, and so their identities are immaterial to the trustworthiness of the articles. Wikipedia warrants its information by making the process transparent - you can see how articles evolved, and, in an article that is done right, you can see citations to where all the information came from. When those citations are missing, you are meant to be cautious.

The identities of the editors are immaterial - Wikipedia has never claimed to be trustworthy because of who its editors are. Given that, anonymity is wholly appropriate, and to go out and try to expose somebody is a petty attempt at harassment.

I say this as someone who edits Wikipedia openly and under my own name. The enemies I've made on Wikipedia have taken active advantage of that, filing spurious reports with my local police to try to subject me to police harassment and intimidation. They openly speculated that they might be able to force me out of my PhD program. That is the price editors pay for giving up anonymity. 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.

uh...

[toby]

Wikipedia isn't destroying anything... Wikis don't defraud - people do.

it also ignores the artificial *inflation*

[Trepidity]

Naked shorting, as essentially leveraged speculation on downward price movements, does serve as a useful counter to the massive, and often highly leveraged (i.e. bank-created money) speculation on upward price movements that created the bubble that got us into this mess in the first place.

The Economist provides a nice tongue-in-cheek fake newspaper article from the future, in which regulators ban naked longs to avoid that sort of speculative market manipulation.

Re:it also ignores the artificial *inflation*

[bkk_diesel]

Naked shorting, as essentially leveraged speculation on downward price movements, does serve as a useful counter to the massive, and often highly leveraged (i.e. bank-created money) speculation on upward price movements that created the bubble that got us into this mess in the first place.

Bullshit. Shorting does provide a mechanism for the market to limit upward price moves on a stock. Naked shorting serves no useful purpose in the stock market today.

Re:Its time to seriously read the Declaration of .

[mikelieman]

Let me know how you get your company's payroll office to stop sending the Feds money every payroll cycle.

Re:Oh give me a break -- why Mr. Ad Hominem?

[whoever57]

Your entire post is an Ad Hominem argument. It says nothing about the truth or otherwise of the accusations against Gary Weiss and others.

Roll Eyes....

[mpapet]

Some CEO celebrating his righteousness after the fact doesn't get any media traction. The average person knows the system is rotten through-and-through so no one really cares.

Simplifying the issue into "naked shorts are bad" does the whole financial system a disservice. The system is so tightly coupled that removing the ability to short sell actually has removed some of the opacity to the marketplace. Shorts generally fortell future price declines.

Naked shorts are the simplest problem. The murky and totally unregulated derivatives markets are a far bigger issue. You'll note that they aren't seriously discussed at all. These are the assets that are impossible to price and equally impossible to sell.

The spin on this is so strong, that it turns my stomach. The fear mongering perpetrated on this country is criminal.

Re:Roll Eyes....

[huwgently]

Shorts generally fortell future price declines.

By definition, shorting relies on the stock going down in response to the very act of short-selling. In other words, that sentence is either completely useless or a disingenuous attempt to justify shorting.

Naked Short Selling is a Scam: Here's How

[mathmathrevolution]

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.

Re:Naked Short Selling is a Scam: Here's How

[Snowspinner]

Yes. Naked short-selling clearly can be used to manipulate the prices of stocks.

The question is whether it has been used. And that's a far, far murkier issue. There are a bunch of important aspects of it, and particularly of Byrne's claims about it, that are in no way well-established.

1) Was naked short selling used by a specific investor (who Byrne referred to as a "Sith Lord") to drive down Overstock.com's share price?
2) Was naked short selling used to drive down the share prices of financial stocks, hastening the current financial crisis?
3) Was, as Byrne is implying by declaring victory in this affair now that the SEC has cracked down on naked short selling, the person or people responsible for shorting the financial stocks the same person or people who manipulated Overstock's price?

These are big questions that remain totally unanswered. Some scandalous details about sockpuppeting on Wikipedia (brought to you by an editor who was banned from Wikipedia for sockpuppeting) should not distract from those key aspects of Byrne's claims.

Re:Naked Short Selling is a Scam: Here's How

[mathmathrevolution]

Yes. Naked short-selling clearly can be used to manipulate the prices of stocks.

The question is whether it has been used

From a regulatory perspective, the fact that this is an exploit waiting to happen is sufficient reason to rewrite REG SHO. If you found a security exploit in your code, would you wait until you could prove somebody was exploiting it before you fixed it? Probably not.

I don't know if naked shorts attacked the large investment banks. However, I do know one thing that was left out of the register article: investment banks would be an ideal target for unscrupulous naked shorting. Investment banks are highly leveraged. By driving down the stock price you directly cause the bank to lose solvency and liquidity. If the price drops faster than the bank can reallocate and deleverage then it can be driven into bankruptcy. So the price response to an increase in supply is very non-linear. This could even destroy a perfectly healthy bank, to say nothing to the troubled investment banks of 2008.

Re:Naked Short Selling is a Scam: Here's How

[JesseMcDonald]

Pretty soon the share price has crashed, the company faces bankruptcy, ...

Perhaps I missed something along the way, but how exactly does a low (or zero) share price imply bankruptcy? Whatever investors might think of its shares, the company still has its assets, earnings, employees, relationships with customers and suppliers, etc. There could be problems getting credit, I suppose, but reliance on continuing credit is already a sign of financial troubles whatever the share price might be. Even then a creditor should be more interested in the company's earnings and profit margin than in the share price.

A precipitous drop in price would look very bad for the managers, of course, and would place the shareholders in a unenviable situation if there was a merger or buyout in the works, but from a net worth point of view -- assets minus liabilities -- the company's only relation to its shares is in the initial public offering, correct? The company doesn't gain or lose anything based on who happens to own the shares, or how much one investor paid another to acquire them, except insofar as (voting) shareholders can influence company policy.

Re:Naked Short Selling is a Scam: Here's How

[Snowspinner]

Yes. I wholly support the SEC's move. I just think that, without more evidence, the SEC's move is utterly unconnectable to Byrne and his claims. Which is the significant thing here.

Re:Naked Short Selling is a Scam: Here's How

[mathmathrevolution]

It depends. Technically, collapsing the stock price doesn't necessarily cause bankruptcy, but it could cause any highly leveraged institution (eg an investment bank) to go bankrupt. It's fairly common for companies to have large loans secured by a deposit of stock. If the stock price collapses then the company needs to find additional capital. But banks and investors alike are going to look at their falling share price and get scared away. The company won't be able to raise capital, it won't meet loan requirements, and it will have no choice but to declare bankruptcy.

Re:Naked Short Selling is a Scam: Here's How

[starm_]

You are completely right. And that's not all, the low prices would mean buyers would be getting disproportionately high dividends rates and short sellers would have to pay these high dividends to the people they sold to. There is no money to be made by short selling at under fair price. Short sellers will simply become liable to issue huge dividends!

Re:Naked Short Selling is a Scam: Here's How

[initialE]

I think the real question is this - does any form of short selling benefit the market in any way, and if not, why still allow it? If the intentions of the agent and the availability of insider information cannot be easily determined, why not just shut down the avenue altogether?

Re:Naked Short Selling is a Scam: Here's How

[ClassMyAss]

A company's assets are usually fairly heavily determined by equity, whether owned by the shareholders or the direct company owners. So while margin requirements are likely far more complicated for companies than individuals, the gist is the same: if market value of your holdings (including your substantial holdings in yourself) dip below a certain point, you've either got to come up with more money, or start selling the stuff you have. So it is very possible that even a short term decline in stock price could force an end to operations, especially if these operations rely on highly leveraged transactions.

Re:Naked Short Selling is a Scam: Here's How

[innerweb]

but reliance on continuing credit is already a sign of financial troubles whatever the share price might be.

Most companies rely on short term credit to help drive day to day operations (credit cards, purchase orders, work on contract are just a few examples). Most companies also rely on credit for mid and long term expenses. These allow companies to leverage their cash/value to get greater *work* from their financial assets. This allows for faster turn around on products, services, etc and for greater profits and growth. The trick for most companies is where is the sweet spot that provides faster growth and better profit without risking the company in a downturn.

So, a drop in the valuation of a company's stock would devalue most companies as most companies (with stock) hold a decent percentage of their own stock (an asset). It can also seriously impact the credit lines of the company, interfering with daily operations, the ability to purchase supplies and raw materials as well as pay employees. Most companies are not like Microsoft (merely an example of a company with huge cash reserves) with a huge savings, so they need to keep the cash they have as cash. Interfering with this of course will cause problems for the company and result in devaluation of the company if only temporarily as it deals with these issues.

Cash flow is so extremely important to a company that any interference with it normally has serious impact on the ability of the company to conduct business and remain solvent.

I do not necessarily agree with this heavy reliance on debt, but that is what makes our economic world turn, as some people might have noted from the recent credit crunch fall out and its affect on business, orders, consumerism, etc.

InnerWeb

Re:Naked Short Selling is a Scam: Here's How

[jothaxe]

Your post is very insightful but I need you to explain one step of your logic: When the share price crashes because of the actions you describe, how does this lead the company to bankruptcy? What fundamentals of the business are dependent on the share price? (e.g., does the credit rating of the company depend on market capitalization in some way?) I have never heard anyone explain this important detail before.

Re:Naked Short Selling is a Scam: Here's How

[mathmathrevolution]

It comes down to how the company is financed. Companies can have large loans secured by a deposit of stock. If the stock price collapses then the company could need to find additional capital to maintain requirements for the loan.

But banks and investors alike are going to look at their falling share price and get scared away. The company won't be able to raise capital, it won't meet loan requirements, and it will have no choice but to declare bankruptcy. That is part of what happened with Lehman Bros, although its unknown what role naked shorts played.

Re:Naked Short Selling is a Scam: Here's How

[ClassMyAss]

I think the real question is this - does any form of short selling benefit the market in any way, and if not, why still allow it? If the intentions of the agent and the availability of insider information cannot be easily determined, why not just shut down the avenue altogether?

Yes, short selling is necessary because otherwise it's very difficult for prices to correct themselves downwards. Imagine you have a market composed of 10,000 people, of which 100 own stock in XYZ Corp. Now, if the price of XYZ is too low, any of the 10,000 players in the stock market can immediately jump on that and correct the price by buying until the price is fair. But if the price is too high, only one of the 100 owners can correct the price. Which means that roughly speaking, underpricings will be corrected 100x as fast as overpricings, so the overwhelming likelihood is that any stock on the market is currently trading at greater than fair value. Which is when people go and find another market to play in, preferably one with rules that allow fair market value to be converged on far more quickly...

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

As every fool knows, an increase in supply causes the price to drop. [...] Naked short sales completely destroy the relationship between supply and demand.

That's true only for sufficiently large quantities of naked shorting. Otherwise, it's a minor accounting issue. Do you have evidence that this is an actual problem? Or could it be just a theoretical one?

Personally, I'd be surprised if it's a big deal. If you're trading, your trades are going through a clearing firm. I haven't been involved the industry in more than a decade, but clearing firms always kept a very careful eye on outstanding obligations to make sure that you wouldn't blow up, as it's the clearing firm that has to clean up the mess. Somebody doing a huge volume of naked shorting is terribly vulnerable to a short squeeze, and those are very, very expensive.

. Pretty soon the share price has crashed, the company faces bankruptcy, but the perpetrators can easily cover their position at bottom dollar making millions.

Why would you be bankrupt if your stock value drops? Bankruptcy sure can impact your stock price, but it shouldn't go the other way around, as that's an imbalance between assets and liabilities.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

It's fairly common for companies to have large loans secured by a deposit of stock.

Could you show some references on that? I've seen loans with warrants, or loans secured with the stock of other companies, but I've never heard of a loan secured with the company's own publicly traded stock.

The company won't be able to raise capital, it won't meet loan requirements, and it will have no choice but to declare bankruptcy.

Please point me at some mainstream business press articles describing this happening.

Re:Naked Short Selling is a Scam: Here's How

[JesseMcDonald]

It's fairly common for companies to have large loans secured by a deposit of stock.

At first I just accepted this, but on second glance it seems a bit odd. Why would a creditor accept stock as collateral? After all, if the company can't manage to pay its debts its stock won't be worth much, and that's precisely when the deposit is needed most.

Re:Naked Short Selling is a Scam: Here's How

[harveydawabbitt]

A few moments ago in the hearing with mr waxman and mr. fuld.(C-SPAN) mr fuld admitted at least two times that naked short sellers along with false rumors took down his company. I believe he is under oath. so what would mr weiss have to sayabout that? again patrick is right on the money. mr weiss should be one of the participants in this hearing. as one being interrogated by our law makers. it doesnt look good for mr fuld he is doing his best to be honest i think. there were a few times he seemed rather "on the spot"with some of the questions being asked. naked short selling is indeed a big part of this problem we face in our capital markets today.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

Why would a creditor accept stock as collateral?

Yeah, I've been thinking the same thing. If a company goes bankrupt, then creditors get paid before shareholders. So lending somebody money against their own shares seems crazy.

If things get ugly, then as a secured creditor, you get to seize the assets, which are worthless. I'm no expert, but it seems like at best you'd turn into an unsecured creditor, which you could have been had you just lent them the money outright. And at worst, you'd be given the probably-worthless stock, which you could have had just by buying equity.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

most companies (with stock) hold a decent percentage of their own stock (an asset).

Do you have any evidence for that? On the balance sheets I just looked at, nobody held more than a couple percentage of total assets in their own stock, and it was not counted as an asset.

Re:Naked Short Selling is a Scam: Here's How

[Renowned Expert]

You sir are missing the point. If 100MM shares are outstanding, a hedge fund can buy puts on 20MM, 50MM or 100MM shares and "encourage" the option market maker to hedge the position by selling short the same number of shares, without borrowing, and with no intent to deliver. With no SEC enforcement, the market maker has no worries. He can remain naked as long as he wants. 1. What would happen to the stock price? 2. If this can be done, why would it not be done? As to evidence: The exchanges' Regulation SHO Threshold Lists, which document all issues with 0.5% to 100% or more of the float failing to deliver, sometimes for months on end. Don't trust me; Google Reg SHO Threshold List. There's one for each exchange with failure-to-deliver (FTD) counts.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

I'm just not buying it.

First, there's no evidence that the recent restrictions on naked shorting mattered at all.

Second, if options traders could hedge major positions for free, they would do it all the time, and you wouldn't have a few stocks with some amount of failure to deliver, it would be massive quantities of all of them.

Third, no sane clearing firm would put up with somebody taking a position that could trigger a short squeeze all on its own. It's too risky, even if a clearing firm was willing to take a risk on the unlimited downside of the short sale of a large part of a company.

I think Hanlon's razor yields a more plausible explanation. Most people do it properly, through a mix of non-idiocy, fear of regulatory or exchange enforcement, and sheepdogging from clearing firms. Some people screw it up from time to time. And very rarely, somebody tries a stunt like this, they get hammered.

As you say, if it can be done, it would be done. Lots. If it were, we'd see the effects of it all over the place. It would be obvious when somebody pulled it off, and even more obvious if they screwed it up. Since we don't see that, the simple assumption is that it isn't really happening, and that we just don't have the details on why.

Re:Naked Short Selling is a Scam: Here's How

[Renowned Expert]

Evidence that recent restrictions on naked short selling mattered? There is no way to know what would have happened without the restrictions. The protected companies may have dropped 80% for all we know.

Would options traders hedge major positions for free all the time in massive quantities if they could? Maybe only a few rogue traders are doing this and they know they need to tread lightly to avoid detection.

Would a clearing firm allow a position that could trigger a short squeeze? How is a short squeeze possible when the trader in question can flood the market with 100,000 or 1MM or 10MM or 100MM shares whenever he wants, irrespective of the availability (or non-availability) of a borrow or the float?

I can't say who is doing this because DTCC (owned by the prime brokers) won't release detailed data. But the mere existence of hundreds of companies on the Reg SHO Threshold Lists proves millions of shares have failed to deliver.

I've never believed in a conspiracy in my life, but I've spent a great deal of time on this and I am convinced. So are a lot of other people, apparently including Christopher Cox.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

I've never believed in a conspiracy in my life, but I've spent a great deal of time on this and I am convinced. So are a lot of other people, apparently including Christopher Cox.

You? Who's that?

You're some guy who has turned up on Slashdot precisely to push particular views in this one story. Views with no evidence, just blah-blah theory talk, and no real answers for key questions. If you've got a real name and background you'd like to own up to, maybe you've got some credibility. Otherwise, to me you're just another troll or fake.

And Christopher Cox was never convinced. He pushed this very temporary and limited regulation because he knew it didn't matter; it was just to give the appearance of action, while doing nothing. Because his entire SEC career has been marked by doing nothing, and when possible, doing less.

Re:Naked Short Selling is a Scam: Here's How

[Renowned Expert]

You can attack the messenger if you like.

Congratulations on reading the mind of the Chairman of the SEC.

Which Commissioner do you think convinced him to take action on this non-issue? Whose data do you think they were using? Is your data better?

Good luck.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

You can attack the messenger if you like.

You brought the messenger into this. I pointed out that you lacked proof. You then justified your claim via your personal credibility.I'm just saying that, as a newly-minted account, you had none. And now, given that you're dodging the question, you have less than none.

Re:Naked Short Selling is a Scam: Here's How

[Renowned Expert]

You're stupid.

Re:Naked Short Selling is a Scam: Here's How

[dubl-u]

You're stupid.

Well, now you've persuaded me of your position!

And wounded me grievously, to boot. Some anonymous troll with conspiracy theory and a fake account has called me dumb! Oh noes!

Seriously?

[ExecutorElassus]

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.

Re:Oh give me a break -- why Mr. Ad Hominem?

[Snowspinner]

I don't know the truth of the accusations against Gary Weiss.

However, the "investigative journalism" touted by Byrne consists purely of information fed to the Register by Byrne - there are no sources other than Byrne for almost all of the significant claims in the Register article. So what we have is an article that is, for all practical purposes, authored by Byrne that leaves out huge swaths of information that runs counter to his agenda.

Given that the entire matter, then, is about Byrne, I think asking pertinent questions about his tactics in his war on naked short selling, and the facts behind one of his biggest and most significant claims about naked short selling is utterly germaine. After all, as it stands, it's Byrne's word against, well, Byrne's record.

I should have taken the time...

[Phat_Tony]

Darn. Looking at this, it makes me think, "Why didn't I write something like this back when I wrote this. Of course, Wall Street wasn't known for doing so much stupid crap back then to relate the news to for current relevance, but I found most of this back then. Oh well. I wish I had the time to act like a full-time journalist every time I find something interesting like this. Kudos to this guy for bringing this to the forefront.

not for the most part

[Trepidity]

A huge proportion of leveraged speculation is with uncollateralized loans. You don't think hedge funds are all backing up their lines of credit with tracts of land as collateral, do you?

Well

[Is0m0rph]

The first thing I'd say on naked shorting is to put some damn clothes on. Jeez...

Kicking it up a notch!

[Sockatume]

Last time we saw about this, Mr. Overstock was claiming that Wikipedia was responsible for all kinds of financial destruction of his company, but not the ebb and flow of the whole economy. What next? Will Wikipedia be held responsible for McCain/Obama (delete as appropriate) not getting into office?

Re:Kicking it up a notch!

[Froomb]

Last time we saw about this, Mr. Overstock was claiming that Wikipedia was responsible for all kinds of financial destruction of his company

Please provide even a single statement by Byrne remotely blaming Widkipedia for "all kinds of financial destruction of his company." Thank you.

Perhaps you cannot, because he did not do so? It is routine to claim that Byrne has been acting out of narrow, selfish interests all along, when the evidence is just the opposite. Check out his early and prescient warnings concerning the systemic risk of NSS.

http://www.youtube.com/watch?v=SIHw7C73s3E

Re:Kicking it up a notch!

[Sockatume]

You can start up at the top of the page, with the last Reg story about this. Byrne's stance is not only that Wikipedia is biased against him and in favour of blind shorting, but that it's specifically targetting his company under the orders of the mysterious "sith lord". The only difference this time is that he's saying said fictional evil jedi is after the entire stock market.

What's in a name

[frisket]

What worries me is that anyone would even consider doing business with a company called "Overstock.com" in the first place.

Re:What's in a name

[creature124]

It is a mistake you only make once. Believe me.

Re:Oh give me a break -- why Mr. Ad Hominem?

[Sockatume]

Do you even know what ad hominem means? Since when was "What evidence does Byrne have of a connection here?" ad hominem? It sounds like asking someone to stand up for his argument to me.

Wikipedia: a measure of civility?

[Sockatume]

For those who've been following more than The Register's coverage, it seems the real question is, "does the ability to edit Wikipedia in a reasonable fashion give an unfair advantage?". I mean, the whole reason that Byrne and Judd are so pissed off is that their opening gambits were, essentially, to act like stereotypica Wikipedia trolls, and that resulted in them being cast out. Now, that's one thing, but when their side of the argument is cast out with them (they're the only people actually chasing this alleged story, it seems) you have to ask yourself whether Wikipedia's giving an unfair advantage to the sweet talkers.

Those wikipedia articles

[Sockatume]

Gary Weiss, Patrick M. Byrne. Showing the clear and overwhelming bias in favour of Weiss and against Byrne.

Re:Those wikipedia articles

[mysidia]

It's fairly clear that although Wikipedia's policy is to strive for the Neutral Point of View.

The contents of the articles have been manipulated by individuals who wish to show them in only a positive light, and to the exclusion of notable criticism and negatives of these individuals.

With similar manipulation of the Naked Short selling article itself.

Wikipedia articles are supposed to be driven by the community of editors in an elgalitarian manner

And yet the articles that have controversial topics surrounding them have become purely elitist.

Pandering to the interest of those with the cash, and the articles like "Naked Short Selling" are locked to prevent the community from introducing some sanity into the articles' content.

Re:Those wikipedia articles

[Sockatume]

Would you care to provide any examples? I keep hearing about this alleged manipulation, but I'm never actually shown anything beyond veiled references to the malevolent elite. (FWIW, I've got enough edits under my belt to probably qualify as one of those elites myself, it's actually a rather flattering notion).

Re:Those wikipedia articles

[randyest]

Um, he just gave one (naked short selling) in a reply to a post that mentioned two others (Patrick Byrne, Gary Weiss.)

Re:Those wikipedia articles

[julesh]

Um, he just gave one (naked short selling) in a reply to a post that mentioned two others (Patrick Byrne, Gary Weiss.)

All three of those articles have a _lot_ of editing going on. It clearly isn't all manipulation by the "elite". I think links to diffs would be appropriate, here.

Re:Those wikipedia articles

[randyest]

What? Those articles are locked and have been for a while (or at least they were yesterday when I posted.)

Re:Those wikipedia articles

[julesh]

What? Those articles are locked and have been for a while (or at least they were yesterday when I posted.)

OK, so there had been a lot of editing, rather than a lot of editing still being ongoing. It's still not obvious which particular edits you were referring to.

Re:Oh give me a break

[Sockatume]

More to the point, where are these mystery emails that prove Weiss' involvement? What do they say? Who are they from, and who are they sent to? Where, indeed, is the evidence? Are we to take it for granted that it exists?

Re:Oh give me a break -- why Mr. Ad Hominem?

[Snowspinner]

At least I put my name to what I say, and make specific claims that can be followed up on instead of vague insinuations.

naked shorts against financials = ingeniuos!

[mathmathrevolution]

Don't know if naked shorts contributed to the collapse of investment banks or not, but investment banks would be the perfect target for a naked short sale attack.

Investment banks are highly leveraged institutions that borrow lots of money. Long story short: drops in asset prices impair the banks solvency and liquidity. This further produces downward pressure on asset prices. So you don't need to naked short the bank through very many price floors before you cause a panic. Even though it's a massively capitalized institution, medium-sized shocks can have very non-linear effects.

I don't know to what extent naked shorting contributed to the decline, but I do know that those banks were the ripest of targets.

Re:Oh give me a break -- why Mr. Ad Hominem?

[georgewilliamherbert]

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.

It's all documented where?

[Sockatume]

TFA makes nice allusions to damning evidence but fails to provide any. Likewise TFS. Is it a bit much to ask that we don't just take it on faith that these things exist? I mean, it's Slashdot, for all 90% of commenters know there could be a picture of a robotic duck on the other side of the article link, such is our faith in the summary, but perhaps a little more critical thinking is called for, particularly in this Wikipedia context?

Re:Oh give me a break

[Nutria]

making the process transparent

Like circling the wagons around Mantanmoreland?

Transparency means, among other things:

• 3: free of deceit [syn: {guileless}, {transparent}]
• 4: easily understood or seen through (because of a lack of subtlety); "a transparent explanation"; "a transparent lie"

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.

Where is the raw email?

[Seakip18]

It made me think a little, though you are entirely correct in saying this is not investigative journalism.

What I'm more interested in reading is the raw emails produced from both the register and the "given" computer and responses from the wikipedia and Weiss on said emails. I don't want Bryne doing my thinking for me.

I mean, they did a little as referenced here

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.

But this article needs the nitty gritty details before I'll buy it. It raises the evidence, but does nothing to confirm it. Kinda like saying if the lights are on, someone MUST be home, discounting that someone forgot to turn them off. Gah. I suck at analogies without a car in them....

Re:Oh give me a break -- why Mr. Ad Hominem?

[Sockatume]

So, it's your standard Wikipedia edit war, except one of the participants could afford to turn it into a public war when he was banned from editing.

Nefarious? Really?

[Sockatume]

The only "nefarious agenda" on Weiss' part is that he disagrees with Byrne and didn't manage to get himself banned from editing in the process of their dispute. Likewise, I'm not sure that contributing to an article constitutes "sustained and concerted efforts to distort a subject". His continued presence does not imply conspiracy, only the as-yet-unrevealed "smoking gun" evidence from Byrne would show that.

Re:Nefarious? Really?

[Renowned Expert]

Seems reasonable. But ask yourself: Why would a respected journalist risk his reputation by manipulating multiple identities on Wikipedia to downplay what is clearly a fraudulent practice? Why take that risk? Is it possible he was somehow encouraged to do so by someone with a vested interest in the status quo?

Re:Nefarious? Really?

[Sockatume]

Because he's written a book on the subject with that stance? This is no more mysterious than Byrne's own editing of the articles, which involved the same tricks. There's no reason to assume a conspiracy in either case.

Re:Nefarious? Really?

[Renowned Expert]

He wrote a book on the subject with that stance. Fine. But he would lose nothing by standing by idly while Byrne attacked naked short sellers. Instead, he joined the fight with deceptive methods and finally got caught. Why bother? To promote book sales? I doubt it. I am not assuming a conspiracy. I am accusing Gary Weiss of bad faith.

Re:Nefarious? Really?

[Achromatic1978]

There was a lot more to it than that. Before Byrne went on his "rampage", he went up the line of Wikipedia admins, finding one "SlimVirgin", who promised to investigate. However, funnily, rather than "investigate", she (and this was known by the presence of a web bug in the email) immediately forwarded an email containing evidence that Gary Weiss was mantanmoreland (considering mantan had vehemently denied any COI, etc, etc, etc) straight to Gary Weiss.

She later claimed that she had accidentally forwarded it to him, rather than to another administrator, although she declined to name which, and no administrator ever came forward.

She then modified the story to say she had been stalked and harassed, and that the email contained 'malware and spyware', which lead people to question then why forward it to someone else?

From there, he realized that working within the WP chain was unlikely to bear fruition.

Note that Gary Weiss' editing on the part of the associated articles was to push the POV that no such thing as naked short selling exists, an interesting viewpoint to take considering everything going down now. And note that it wasn't just ignorance, not only was Gary Weiss a financial journalist with Forbes, he also had access to DTCC, and edits were shown being made by him from DTCC IP addresses - note that DTCC is the clearinghouse that tracks all the FTD (Fail To Deliver) that arise from naked shorting.

Re:Nefarious? Really?

[DerekSTheRed]

Then why hide his identity behind mantanmoreland? If what he was doing was on the up and up, he would have been doing it in his own name and wouldn't have used a bunch of sock puppets to echo his position.

Re:Oh give me a break

[harveydawabbitt]

i think a responsible person would be concerned about their company. if something is not right with their company that something needs to be addressed. Mr. Byrne is doing exactly that. you can not deny that overstock has been on the reg sho list for well over 800 days. that seems to me to be a concern and Mr Byrne is well within his rights to ask why. naked short selling is a proven fact. why would you sir be against it? it is wrong it destroys companies and peoples lives. it is counter productive to a healthy market. in short it is theft on a massive scale and last i saw stealing is against the law. if you have the time check out the s.e.c. web site. go to the fails data and down load that data. then ask yourself if you are ok with those billions of fails to deliver. i am not.

Re:Oh give me a break

[Sockatume]

I should be more specific, as Weiss' sockpuppetry is a matter of public knowledge these days, and ask where are these mystery emails that prove Weiss' involvement in the stock-shifting conspiracy?

Re:Oh give me a break

[Snowspinner]

I know who was involved in the discussion that led to it. I don't know who made the call.

As for the transparency, you're shifting the field. Yes - there's a lack of transparency on the level of politics of Wikipedia. But the information presented remains transparent. The identity of the author, if Wikipedia is doing its job right, should be irrelevant to your ability to judge the quality of the information presented.

This may not always be true in practice, but if it is not true in practice the issue is with the article, not with the author.

Re:Oh give me a break

[Snowspinner]

It could be, but I'm operating in the open, under my real name. I leave you to figure out what I could have to gain by echoing any such effort.

On the other hand, Byrne's accusation, at this point, has ballooned to where this Sith Lord is apparently responsible for the global economic crisis, and also has control of the WSJ editorial page, and used it to suppress information that could have led to his being uncovered.

Given that, it seems to me irresponsible for Byrne not to identify this incredibly dangerous individual.

Why troll?

[DesScorp]

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".

Re:Why troll?

[jollyreaper]

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".

*snort* CNN liberal? With the likes of Glenn Beck on there? Or how about Dobbs?

"He looked like an alternatively commander in chief, rock star, movie star, and one of the guys."
(CNN's Lou Dobbs, on Bush's 'Mission Accomplished' speech, 5/1/03)

MSNBC liberal? Because they had Keith Olbermann on between the blocks of prison documentaries? They only added Maddow what, a month ago? For the past eight years Chris Matthews was giving Bush telegraphed blowjobs on air.

"We're all neo-cons now."
(MSNBC's Chris Matthews, 4/9/03)

"We're proud of our president. Americans love having a guy as president, a guy who has a little swagger, who's physical, who's not a complicated guy like Clinton or even like Dukakis or Mondale, all those guys, McGovern. They want a guy who's president. Women like a guy who's president. Check it out. The women like this war. I think we like having a hero as our president. It's simple. We're not like the Brits."
(MSNBC's Chris Matthews, 5/1/03)

"Why don't the damn Democrats give the president his day? He won today. He did well today."
(MSNBC's Chris Matthews, 4/9/03)

Liberal bias my ass. It's just more Republican obfuscation of the facts. "Oh, of course the media has a liberal bias. We've said it before, haven't we? And just look at that evil liberal Couric asking all those tough questions of our dear Palin, demanding her words parse as complete English sentences. Have you no shame, madame? At long last, have you no shame?"

So to anyone talking about liberal bias in the media, fuck you. And to anyone talking about free markets, a double fuck you and a flaming wad of bad paper up your ass.

Re:Why troll?

[illumin8]

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".

No, pretty much all the mainstream media outlets in the US trend right. When you are owned by multi-national corporations that make $billions profiteering from a failed war in Iraq, it's hard not to get biased. Take, for example, GE, which owns NBC, and also sells weapons systems used in Iraq. MSNBC had this little problem of Keith Obermann, a democratic-leaning pundit, similar to the Hannity character on Faux news. Well, he got shutup pretty heavily because some bigwigs over at GE didn't like his "radical left-leaning views".

It's pretty hard to argue that the media in the US is anything but biased to the right. They're all owned by huge corporations that have a vested interest in furthering their right-wing agenda.

No WR link? disgrace

[huagfui]

http://wikipediareview.com/?showtopic=20558 ^ This is kinda old news. The censors keep removing the link futilely, banning isn't going to help you honest ;)

Re:Oh give me a break

[dtobias]

The BADSITES pseudo-policy, which for a time led Wikipedia editors to be threatened with being blocked or banned for daring to link to antisocialmedia.net or Wikipedia Review (among other things), was a sterling example of Wikipedia's concept of "openness".

Re:Oh give me a break -- why Mr. Ad Hominem?

[dtobias]

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.

Re:Oh give me a break

[huwgently]

Because the "world-class reporting" (I assume Byrne intends that to refer to the lush praise the Register showers him with) ...

I rather think he was referring to the the comment I (writing as Frumious Bandersnatch) made on the story, and Mr. Byrne quoted verbatim:

In particular, as someone said above, this "actually has me thinking that The Register is a world-class journalistic publication."

If you had gone back and read some of the other things the Register had previously said about him, you would not have come up with the conclusion that he thinks the Register is brilliant because they're fawning over him. If anything, they've been fairly dismissive of him until now.

Disclaimer: I don't work for, or have any connection with Overstock.com or Patrick Byre. Or the Register, for that matter, btw. I'm just a regular commentard. I'm chuffed that I'm being quoted and that my quote is being talked about, but that's as far as it goes. Unless either of the above wants to offer me a job or something ...

Re:Oh give me a break

[Snowspinner]

I never supported the policy, and was one of the most vehement opponents of it applying to articles. Again, yes - if you want to go into the politics of Wikipedia, there's plenty of spots that are un-transparent.

However you do not need to know anything about the authors of Wikipedia to evaluate the quality of an article.

For those unwilling to waste time on that ascii

[Iamthecheese]

That is a tinyURL link to http://www.deepcapture.com/the-enigma/, a page by someone with a deep hatred toward Gary Weiss.

For the Record: Byrne solicting mod points

[Stats_for_all]

This is a post copied from Overstock's Investor Village forum. Byrne is solicting drive by modding to keep his story over the fold. Who is manipulating who?
=====COPIED============
The Most important favor I have ever made of you folks - Slashdot
Hey Sports Fans.

I don't often ask for your help, but I am asking for it now: rec this post and spread the word on what I describe below. I submitted to SlashDot.com Cade Metz's story from TheRegister. It was accepted. Right now it is on the home page ("A Wikipedia Conspiracy and the Wall Street Meltdown") of Slashdot.com.

The significance of that is that plenty of mainstream press looks at what does well on Slashdot, and then write about it. Ultimately, I think control of the Wikipedia page gave the miscreants the high ground from which to shape the discourse in the mainstream press, which is why it took so long for them to write about this issue long after the data had become incontrovertible. That means to break through the cover-up we had to follow the thread all the way back to Wikipedia, expose them there, then expose their hijacking of Wikipedia, then get the mainstream press to see that. It has all been done but the last step. Cade Metz's story is out. We need the mainstream press to notice it and write about it.

So go to Slashdot, read the story, and if you approve of the story, then vote for it (assuming you are registered). The more votes it gets, the longer it stays on Slashdot, and the more independent and mainstream journalists will start noticing and digging into this.

Patrick

Re:For the Record: Byrne solicting mod points

[Anonymous Coward]

Oh noes! Asking supporters to Digg and Slashdot an article! That NEVER happens!

Byrne was right all along...

[USCCocky01]

Byrne was right all along about the latest corruption on Wall Street. Corruption is nothing new. The fact that so many people are involved is what is amazing. In the past you may have had a "rogue" trader or some small group involved in illegal activity. The most recent scandal involves CEO's, journalists, Congressman, Hedge funds, most of the Brokerages, and the SEC itself. Even more amazing is that it took so long for any investigative journalist to print the story. I guess they feared getting sued or worse yet not getting invited to the Christmas party of the rich and famous. Word is starting to get out now. Banks and Brokerages are failing, hedge funds are going broke, Congress is investigating and people will eventually go to jail. I want to see how much more money Congress will need to fix this mess. I think 700 billion will be a drop in the bucket. What will the DOJ find at the DTCC when they try to account for all the shares that are credited to, but missing, from clients brokerage accounts? How will Congress and Hanky Panky explain all those missing shares? Or will they not explain it (again) and ask for $700 billion (again)? Anyone new to the NSS game should do their own research and not depend on any wiki site. Many investors to this day do realize what NSS is or the extent to which they have been harmed.

Re:Byrne was right all along...

[maximus labs]

Everyone short of your local dogcatcher admits that this practise exist and can be systemic but everyone in the media with the exception of a few don't wish to be blackballed or put in the same ctegory as Patrick Byrne.If there were no p[roblem there would be no Reg. Sho. and the list of stocks on it.It is akin to say there is no counterfeit money because we don't see it. We are being diluted and robbed daily for the sake of a few. Need to dole out jail time instead of fines.

Re:Byrne was right all along...

[justinlee37]

I think 700 billion will be a drop in the bucket. What will the DOJ find at the DTCC when they try to account for all the shares that are credited to, but missing, from clients brokerage accounts? How will Congress and Hanky Panky explain all those missing shares? Or will they not explain it (again) and ask for $700 billion (again)?

You betray your own ignorance of the technical aspects of the bailout. Do you even know what the U.S. Government purchased from the banks for $700 billion? They didn't just give money away. They bought something. Hint: It had to do with mortgages.

Re:Byrne was right all along...

[nedlohs]

Intentionally overpaying is by definition giving money away.

Re:Byrne was right all along...

[justinlee37]

Overpaying for those mortgage backed securities is important for the homeowners of America because it essentially puts a temporary freeze on home prices. The sub-prime mortgage fallout (which is directly from the banks' own idiocy) has totally destroyed investor confidence, and as home prices tumble, many people will be forced into bankruptcy as their homes are no longer worth the value of the mortgage they originally took out to pay for it.

It's giving money away, sure -- giving money away to every American homeowner.

The bank managers deserve to be punished for the sub-prime fuck up, for sure, but that doesn't mean that our financial markets still don't need a rescuing.

So research what you have an opinion on before you have an opinion on it, or you'll act like Washington does most of the time, and fuck up our entire economy out of ignorance.

Re:Byrne was right all along...

[nedlohs]

No it's giving money away to every "I call myself a home owner, but really I rent money from the bank instead of renting from a landlord" idiot who borrowed more than they can afford to pay.

And why should my tax dollars (well more likely my savings due to inflation, since I didn't notice a tax increase to fund this crap in that bill) be given to American "homeowners", of all people. Also if homeowners are the issue, why not buy their damn houses off them at inflated values and skip the middle man? Everyone who bought a house under financing that could only be maintained with appreciation at multiples of the historic norm deserves to lose it. And the bank deserves to lose the money they lent to that idiot. And the buyer of the derived securities deserve to lose their money too. Any idiot could see this was going to happen, back in 2004 - the only bizarro thing is that the the scheme ran for so long.

When home prices double in a few years, then guess what, they need to drop 50% to get back to a reasonable price. I guess you think pets.com needed a bail out too - just think of all those investors losing their money when that bubble also popped. But it doesn't matter how big a bailout the Government does a median house can not be priced at more than 2.5 times the medium income - unless no one lives in them other than people funded by the Government I guess.

Anyway, it doesn't matter what the Government does, they can't stop this tsanumi. They can delay it a bit (which is good for them, makes it the next guys problem).

When you lose trillions of dollars the piper has to be paid. That knock on affect to the rest of the financial sector failing due to counterparties failing is because, shock horror, when you don't price in the risk that is obviously there you tend to end up insolvent and bankrupt.

On the bright side, since the Government can only delay (and make larger) the inevitable, the recipients of this bailout are screwed anyway. On the not so bright side, so it the US economy and the rest of the people.

Re:Byrne was right all along...

[justinlee37]

Real estate prices commonly fluctuate because of market inefficiencies that are unique to real estate ... for example, while the supply is relatively fixed (in terms of buildings and developments), demand fluctuates depending on many factors, and it can fluctuate more rapidly. This can lead to things such as, say, the devaluation of rental properties when demand for housing in a particular area is low.

Given that part of the decrease in prices is due to a loss of investor confidence, and that we are also entering a global recession (part of the normal business cycle), I wouldn't be surprised if the values of the mortgage backed securities eventually rise again.

And even if the borrowers default, the government (that's us, the taxpayers) will still gain control of the land. Since real estate is a finite commodity that tends to appreciate in value in the long-term, in the end, the government is likely to profit from it's purchase. And if that brings us some economic stability in the meantime, it just means that the recession is more likely to end neatly.

Re:Byrne was right all along...

[nedlohs]

The biggest real estate bubble the country has ever seen (the world has ever seen possibly, though the UK bubble may beat it out once this is over) is not a common fluctuation due to inefficiencies. It's mania and ends badly every time.

None of the price decrease in housing has been a result on loss of investor confidence. Prices are *still* way above what the fundamentally should be, because the bubble isn't done busting. Sure investor confidence has plummeted - but that's rational and is bringing the prices back to a normal level and the fundamentals are the level the confidence should be,

Just like the dot-com stocks did not drop because of "a loss on investor confidence" but because they were worth far less than what people were willing to pay for them during the bubble. Housing is in the same situation and the result will be the same, with the huge difference that this time a large number of people leveraged to the hilt and banks let them do so with no skin in the game so huge numbers of defaults is the obvious result.

The government is not going to profit from this. People borrowed too much and can't afford to pay it back. They could profit nominally if they pushed inflation through the roof, but that hardly counts. If they don't mess with inflation then the only way those mortgages do not default is if the principle is lowered - and that obviously destroys the value of those securities anyway.

You can't profit by overpaying for assets when you are still closer to the top than the bottom of a bubble on the down end.

Re:Byrne was right all along...

[USCCocky01]

> I bet you think that the "mortgage crises" and the naked short scandal are seperate issues. What do you think the brokers did with the money they stole from investors, their clients, through naked shorting???? Put it under the mattress? Hint: It had to do with mortgages. Get a clue. They all bought MBS's to get that easy triple AAA rated 9% yeild....Then reality set in and the Mortgage backed paper is worthless and the Brokers still have to replace the stolen money in their clients accounts. So to say this is a "mortgage crisis" really doesn't define the entire issue. Mark this post. Some smart go getter in the financial media will be reporting on the depth of the problem one day, then you can say you heard it here first.

Re:Byrne was right all along...

[justinlee37]

You have a point in that using leverage to purchase assets in the hope of generating equity profit is a risky game. After all of this thinking now I'm not exactly sure how I feel about it.

In the 1930's, when the stock market crashed, one of the biggest financial sector fuck-ups that brought us the great depression was that tons of Americans were using bank loans as leverage for stock market investment. Prices went tumbling and the banks had lots of write-downs because of it ...

In any case, at least congress is spending some money domestically, instead of throwing it into foreign wars and supporting gasoline path-dependency ... ugh.

Tanking Companies Don't Issue Dividends

[mathmathrevolution]

Dividends aren't common as they used to be. But dividends by a company whose share price is collapsing? Not a chance. Companies issue dividends when they have excess capital, not when their capital is being vaporized. And if companies have loans secured by stock then they certainly can and will go bankrupt simply by a rapid drop in share price.

Re:Tanking Companies Don't Issue Dividends

[mathmathrevolution]

If the company has no potential to generate dividends then it is worth nothing and should be shorted into oblivion.

Future potential to pay dividends != current ability to pay dividends. No well managed company is able to spontaneously issue a dividend because well-managed companies do not sit on cash. When sit on cash you are wasting capital.

Re:Tanking Companies Don't Issue Dividends

[dubl-u]

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.

Re:Tanking Companies Don't Issue Dividends

[rufty_tufty]

"No well managed company is able to spontaneously issue a dividend because well-managed companies do not sit on cash"

I know many UK based companies pay dividends, I wouldn't say they were badly run at all. Not paying dividends seems to be an American trend.

You pay dividends when you have excess cash yes. Suppose you have had a profitable year, you've paid off all your loan(s) (requirements), you've paid all your bill, and yet you still have money in the bank. What do you do?
You can either:
* invest in your own business - and there may not be anything you can see that is a worthwhile investment given your current market.**
* You can pay bonuses to your employees for helping create this successful year.
* Decide that you're well enough invested and your employees are happy so you pay it back to the shareholders.***

That was certainly how stock markets used to work until modern times anyway. This ties in much better with the concept of a limited company (privately held shares) as opposed to a public limited company (publicly held shares). Consider a small family business that isn't traded publicly that would take dividends as an efficient method of rewarding themselves for a successful year.

** I think it is a very harmful assumption to say that any business _must_always_ invest back in itself. This means you either get jack of all trades master of none companies or you get companies throwing money at something they'll never find success at. Yes occasionally you do end up with global behemoths but this isn't always a good thing...
*** Historically an investor would buy shares in a company and expect the dividends to be greater than that they would get had they invested the same money in a bank. (say > 10%) If a company was successful then any shares anyone traded would settle to the market expectation of what ROI you should get vs the appropriate risk.

Re:Tanking Companies Don't Issue Dividends

[julesh]

And their stock price going down leaves them with the exact same amount of capital.

Unless they're holding their own shares as a treasury reserve.

Re:Tanking Companies Don't Issue Dividends

[mathmathrevolution]

You are correct. However, the key word I used was spontaneous dividends aka dividends issued for the express purpose of foiling naked short sellers. Like you said: companies don't like to keep extra cash on hand. So coming up with cash for a dividend payment on some arbitrary date is going to be hassle for any company.

Re:Tanking Companies Don't Issue Dividends

[dubl-u]

Sure, but that doesn't count as an asset, does it? If it did, then you could increase your assets infinitely just by issuing new shares and buying them back.

And for the balance sheets I looked at, nobody has much in the way of treasury stock, certainly not enough to cause a big balance sheet problem even if you did call it an asset. So I think the notion that a naked short spree could cause a bankruptcy this way is still pretty implausible.

Obligatory grain of salt

[bXTr]

I like most of the stuff at The Register, but they jumped the shark a long time ago concerning WikiPedia. Anything like this posted on El Reg should be considered suspect.

Re:Obligatory grain of salt

[Falconhell]

I would say El Reg has been spot on all the way on this issue. Wikipedia has become a parody of its own ideals. I have followed this saga and all the Reg articles have had links to the Wikipedia discussions etc, and examination of these links has not revealed anything other than verifying the Reg stories.

I am amused at the frantic defense of WP in this thread. What sort of no-lifer does it take to make a Wiki admin?

It seems Mr Byrne was right all along.

Re:Oh give me a break

[The Bungi]

Judging from how you've stormed this article, I have a feeling you might be one of the people involved on the WP side. This is a sordid saga to say the least, and Wales was very much involved in making sure that the "SlimVirgin" admin was shielded from blowback on the whole thing.

Every single post you've made so far is nothing more than ad hominems directed towards Byrne, but nothing particular of value other than your opinion that he's an idiot. Which may very well be the case, but doesn't magically come true just because you say it.

Ultimately, even if it's true or false, it's just another internet drama, brought to you by the unintentionally funny faux secrecy so desperately and incompetently exercised by the people who control Wikipedia.

Re:Oh give me a break

[Nutria]

The identity of the author, if Wikipedia is doing its job right,

Identity-of-author is part and parcel of transparency.

On one hand, it makes sock puppetry difficult. OTOH, it exposes those who are maliciously attacking/slandering those who try to expose impropriety.

Poetically: sunshine pierces the darkness, driving away those who do evil.

should be irrelevant to your ability to judge the quality of the information presented.

But if I'm not an expert in the field, or have no first-hand knowledge of the topic, how can I judge the quality of the information?

It gets bigger and bigger

[eagertogo2004]

Who ever cries and says nothings wrong with whats going on with all the manipulation of wiki and stocks being naked shorted aka counterfeited needs to wake up a smell the roses. Every time I have heard crying over the past years this event gets bigger and bigger and everthing that people said doesnt exsist such as naked shorting all of a sudden seems to exsist and alot of it. I think a rule should be made that who ever naked shorts or counterfeits shares of stock should get a mandatory 20 years to life with no parrole. Wouldnt take but a few to go to jail to straighten up the market.

Re:your sig is wrong

[Anonymous Coward]

No, thinking about child porn would be thought crime.
Viewing it is an action and also requires you to obtain it, either by producing it or through distribution from someone who produced it. Penalising possession of child porn because of the criminal nature of its production is quite consistent with our laws, such as the law against receiving stolen goods.

I appreciate any well-thought-out arguments against my highly controversial signature. This category certainly includes yours. Unfortunately in America if not in other places, someone writing fantasies about children, drawing and/or selling cartoons or CAD-created CP scenes, or, being a minor, taking pictures of oneself nude, is illegal. It is mostly against these laws that I rail.

But I also disagree with your proposal that it is reasonably illegal to possess or view real CP. Recipt of stolen goods in rather unlikely unless one has paid for them. This is not the case with any form of pirate-able IP. (if one could call such horrible information "IP") CP is more likely to be possessed by piracy than by payment. Furthermore, and this does nothing to diminish your point, I believe that possession of stolen goods should not be illegal. I think only payment for stolen good should be illegal.

perceptions

[toby]

CNN trended left in the early 90's

...Yet remains right wing to those outside the US. Like all of your popular media, CNN falls far short, in questioning government and policy, of what ordinary attention to public interest, and common ethics, would require.

FOX, as we all know, is Murdoch, who murdered mainstream journalistic discourse in Australia and the UK long before he started attacking it in the USA.

None of this is new. Real journalism doesn't get air time in the conglomerates. You still have NPR... for now.

"MONOPOLY IS a terrible thing--until you have it." Those were the words of right-wing media tycoon Rupert Murdoch, owner of Fox TV, Fox News, Century Fox studios and the New York Post, among many others media outlets.

... Murdoch sounded as innocent as a lamb when he told the Senate Commerce Committee that relaxing regulations would be a great thing for consumers--and swore that he wasn't about to add to his empire. "I have no plans for anything other than the what I have before you today," said Murdoch--prompting several senators to burst out laughing.

... FCC Chair Reed Hundt warned that the Telecommunications Act of 1996 would allow "a few companies to buy all the radio licenses in the country."

Hundt was right. Since the law passed, Clear Channel Communications has expanded from owning about 40 radio stations in 1995 to approximately 1,200 outlets today--almost 1,000 more than its closest competitor. All told, Clear Channel controls the audience share in 100 of 112 radio markets in the U.S.

Re:perceptions

[plasmacutter]

Sorry, but we don't have NPR.

talk radio is death valley even for the "left" (center) perspective that is CNN.

They offer plenty of air time to boortz, hannity, and all our fine little friends in the right wing echo chamber.

The one attempt at "liberal" talk radio was squelched by the likes of clear channel squeezing potential advertisers to stay away under the table.

The only "left" media you'll find is in print.. hidden in dusty corners, or under piles of "slander", by ann coulter

Re:perceptions

[Xtifr]

[CNN] remains right wing to those outside the US.

And remains pretty blatantly right-wing to many of us within the US too. Just because much of our national media has been taken over by far-right extremists who want to paint moderates and centrists as ultra-"liberal" (usually in complete and utter ignorance of what that term even means) doesn't mean that everyone in the country has been brainwashed by their soviet-style propaganda.

Re:perceptions

[plasmacutter]

Where do you live?

In many of the swing states people are accepting the news as if that's all there is.

Even in blue states I have family members looking dolefully at me when I tell them the MSM has degenerated into propaganda.

Re:Oh give me a break

[Snowspinner]

Follow up on the sources given. If there are no sources given, treat as though an anonymous person you didn't know wrote it on the Internet.

What to buy with fake money

[Unsung Bovine Herd]

And there fake money comes into it - because something is being represented as having value that it is known not to have.

With fake money I can buy all the imaginary property I want!

Re:Oh give me a break

[Snowspinner]

I am a Wikipedia administrator. My role in this drama consists of a brief cameo at best: I created an article on Judd Bagley at one point. Mostly in protest of some poor decisions on policy that were being made.

My objection here is that Slashdot is being used to present a horribly biased account of something, based on a poorly written article stitched together by implication.

That and I find Byrne's "Sith Lord" claim absolutely hilarious, and feel compelled to repeat it as often as possible. It's like a financial Xenu!

Re:Mark Cuban on CEOs who whine about shorts

[Froomb]

>And remember, rule of thumb #1 If the CEO of a company that you own [OSTK] about short sellers hurting the price of the stock.

As a shortseller of OSTK, I understand how you have every interest in portraying the company in a negative light. But for the readers of Slashdot, please provide even a single example of where Byrne blamed short sellers for hurting the price of OSTK. From the start he was careful to disassociate his campaign against naked short selling from the price movements on his company's stock. On the other hand, it has routinely been the practice of those who disliked him and were short OSTK to impugn his motives. Funny how for so long he was branded as "whacky Patty" for even suggesting that NSS was a problem. But now the head of the SEC himself has taken action a series of actions to block its spread. It's so unfortunate for critics of Byrne to learn that, yes, he was right all along.

mod down, he's confused his theory with reality

[mathmathrevolution]

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!"

Re:mod down, he's confused his theory with reality

[Fred_A]

Apparently the OP assumes the market has much more relationship with the real world than it actually has. However it's often the market that drives the real world. Not the other way around.

Re:mod down, he's confused his theory with reality

[starm_]

How would the share price influence profitability and the potential for dividends may I ask you?

Re:mod down, he's confused his theory with reality

[eyrieowl]

because share price and market cap often act as a collateral of sorts for credit. and without the grease of credit, as you should know by now, the wheels don't turn so well....

Re:mod down, he's confused his theory with reality

[Lost Race]

I heard long ago that the "correct" value of a share is the present value of all its future dividends. Ignore the stock market completely, predict future profitability of the company itself, figure out what dividends it will pay, run them through your financial calculator's "present value" function, and voila! that's the proper value of all the company's stock. Or something like that. Yeah, it all breaks down when theory runs into reality and a stock crash ruins the company's ability to raise operating capital, but I'm guessing that's what the earlier commenter meant by "fair price".

Re:I also read that

[_Sprocket_]

So I got an insightful mod on this post. It has me pondering.

I mean - sure, thanks for the nod. But I was kind of expecting a "funny." I'm not sure what "insightful" is saying. Is that, in itself, the joke? It boggles my mind that someone might have been taking the quip seriously.

We have polls claiming a large percentage of people get their news from comedy shows. That's a bit of a sting on our mainstream journalism. But it's always given me this uneasy feeling that it's more of a statement on said people.

That this is all coming from a meme started by The Colbert Report just seems like poetic justice.

Re:Oh give me a break

[Froomb]

That and I find Byrne's "Sith Lord" claim absolutely hilarious,

You wouldn't feel that way if you happened to look into the matter more than superficially. If you really believe that hedge funds (none of which can even be registered, much less regulated), such as that that run by John Paulson--who earned $17 billion in 2007 shorting the ABX index thereby forcing global writedowns of mortgage backed securities due to the artificial decline in the very metric used to price such illiquid assets--don't have enormous political and economic clout, then I do pity you. If you own a home or any stock at all, you've had your pocket picked. Hilarious indeed.

Counterfeiting Stock

[tkalantzis]

Financial syndicalism is an act of insurrection or sedition, Treason by a simpler name. The citations are CJS 22, 22A, and 46.

Re:Oh give me a break -- why Mr. Ad Hominem?

[calidoscope]

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.

To be flippant, how is that different than a lot of other corporate CEO's?? You may remember the Slashdot article from a while back about how many CEO's showed many traits in line with sociopaths.

Weiss's actions strongly suggest that there was more going on than just thinking that Byrne was a nutcase. His actions remind me of the Whole Foods CEO using on-line pseudonyms to knock competitors. If there is any truth behind the allegations in the Register article (and that's a really big "if"), Weiss could be in some really hot water.

Yet exactly that happened at least once

[Moraelin]

Yet at least once exactly that happened: somebody called a trader called Refco and told him to "mercilessly short Sedona". It's apparently on tape too.

It's hard to take an argument that no trader would do it, when at least one cheerfully did.

Additionally, the ones in the best position to do either kind of shorting _are_ the Brokers/Dealers. In fact, the only ones who can. So maybe they'd laugh if _you_ called and asked them to break the law for you (though, again, at least Refco didn't), but there's nothing to say they wouldn't engineer a company's death spiral for their own monetary gain.

Re:Yet exactly that happened at least once

[Hognoxious]

So maybe they'd laugh if _you_ called and asked them to break the law for you

GP never said anything about legality. Just that the broker wouldn't do it unless they were sure the potential loss was covered (meaning you have a sufficient deposit to cover the margin).

Re:Mark Cuban on CEOs who whine about shorts

[mr_death]

As a shortseller of OSTK, I understand how you have every interest in portraying the company in a negative light.

A plain reading of my first sentence ("I've been happily short Overstock in the past, ...") would lead the average reader to believe that I have been short previously, but am not now. So I have no interest in portraying the company in any light at all.

A CEO who spends time complaining about shorts isn't paying attention to his business. The best thing he could do to hurt the shorts would be to manage well and deliver a positive earnings surprise. Since Byrne isn't doing that, he probably can't deliver a blow-out quarter. His management skills are in question, and I have to wonder why his board of directors isn't demanding more productive behavior.

Regarding the SEC, they have block *any* short selling (naked or otherwise) of financial stocks (http://www.sec.gov/news/press/2008/2008-211.htm). IMHO, this is utterly loony, and a continuation of the "blame the shorts" game that started in the Crash of '29. It was convenient to have a political boogey man to divert attention from the real issues then, and it is very convenient now.

You're zero for two. Perhaps you should quit while you're ahead.

It works for other countries

[Moraelin]

1. Well, AFAIK a simple change worked perfectly for other countries, and in fact it's how the stock market has always worked in most places that aren't the USA. It's similar to what in computer programming you'd call "distributed transactions" or the ACID principle: the swap between shares and money happens simultaneously, and either both succeed or both fail.

In non-nerd terms: you don't get the money until you actually deliver the shares.

It's mostly a USA problem that you can sell IOUs. And the fallout is exactly the same that those of us programming databases already knew would happen when a non-transacted program goes wrong: Refco alone apparently left ridiculous ammounts of fake shares in the economy.

With the change of the swap being simultaneous, pretty much that disappears: you don't actually get the money for 1000 Sedona shares until you can actually deliver 1000 Sedona shares, and the buyer doesn't own an extra 1000 shares in the meantime. You can game on the delay, but in the end any transaction you can't deliver can be basically rolled back, leaving the economy to where it was before. Grandma gets her money back, sorry, couldn't buy Sedona stock after all. The broker didn't make any money in the end. Sedona doesn't end up with ten times more shares on the market than it issued.

Now I'm not saying it can't be gamed, but you can't sell what you don't have. You can promise to sell what you don't have, but at no point does it become something that looks like genuine extra shares.

2. Most of the world's economy works perfectly well that way.

It never ceases to amaze me the way the USA insists that any of their quirks are grrreat (and according to some, even _vital_) for a working system, and eliminating them would spell doom and gloom for everyone. Especially when perfectly good examples exist of countries and economies which work perfectly well without those quirks.

And yes, people still buy stock, even when it's impossible for it to be counterfeit. (Since your argument seems to be that without naked shorting you wouldn't buy stock for fear of it being overvalued.) I don't know about you, but I'd be _more_ inclined to buy stock in the next Sedona, if I know that there can't be a Refco flooding the market with FTDs and devaluing my portfolio to penny-stock.

3. It loks to me like shorting generally, whether legitimate or fraudulent ("naked",) does _nothing_ to prevent stock becoming overvalued, or even an outright bubble. You don't short stocks when they're _rising_, so it will do nothing whatsoever to prevent their becoming overvalued. It just accelerates the fall once they go a bit over the top. So instead of preventing a bubble, it just makes the crash harder at the end of it.

In fact, from where I stand, it looks to me like it might even encourage a bubble. Traders can essentially ride a company both ways, and make money from both its rise _and_ its fall. There is very little to discourage helping it become way over-valued, when it just means you'll make more money on its way down too.

What that means for the private investor isn't that someone is helpful and keeps you from buying overvalued stock which may fall later. It means that someone else is encouraging stocks to become overvalued in the first place and then helping _your_ shares fall faster when they fall, and making some money out of it. Essentially that mechanism means he can make some money by making you lose more. Exactly why _that_ would be more incentive to invest, is beyond me.

Re:Oh give me a break

[Whiteox]

Read the Discussion page. There you can see what alternative viewpoints exist and how the present state of the article developed. Unfortunately, deletions are not saved.

in what sense?

[Trepidity]

Naked shorting is almost exactly equal-and-opposite to leveraged long positions, much as normal shorting is equal-and-opposite to nonleveraged long positions.

If you want to ban both kinds of leverage, go ahead: require all shorts to be covered, and all long positions to be backed by cash. But banning leverage on the downside but not the upside inflates prices artificially.

Re:in what sense?

[bkk_diesel]

Naked shorting is almost exactly equal-and-opposite to leveraged long positions, much as normal shorting is equal-and-opposite to nonleveraged long positions.

If you want to ban both kinds of leverage, go ahead: require all shorts to be covered, and all long positions to be backed by cash. But banning leverage on the downside but not the upside inflates prices artificially.

The thing is that a mechanism to limit upward moves on stock prices is beneficial (short selling). The problem is that your comment supposes that leveraged buying and naked shorting are equal and opposite in effect. This is clearly not the case. When a stock is overpriced nobody has to buy it - no economic damage is necessarily done. When a stock is pummeled to the point that a company is no longer able to function effectively as a company gross economic damage is done. Naked shorting is a weapon of economic destruction.

Re:in what sense?

[jipn4]

When a stock is pummeled to the point that a company is no longer able to function effectively as a company gross economic damage is done.

If a company has been "pummeled" to the point where its stock value is lower than the assets it holds, then people can just snap it up and sell it for its parts.

The real problem is that a lot of companies have gotten used to an irrational and inflated stock value and think they have a right to print money and to retain employees in worthless paper (stock and stock options). And those are the companies that complain about "naked shorting". Of course, most of the companies in the US economies are such bloated paper tigers.

Uncovered Put Option?

[gadders]

In other words, is this analogous to writing an uncovered put option?

Re:Uncovered Put Option?

[Renowned Expert]

No. A put is an independent contract between the writer and the buyer whose value fluctuates with the price of underlying shares; not a claim on the shares themselves. On an issue with 100M shares outstanding, one could write puts on 1B shares if he could find a buyer. In naked short selling, the buyer believes -- and is told by his broker -- that he has a claim on the shares he bought. However, because they are not delivered (because they were not borrowed), the buyer has nothing. At a minimum buyers should be told when actual shares are not delivered. This is not done. SEC tells us which issues have 0.5% or 150% of their float undelivered, but no one knows which "share" holders actually have shares. Crazy but true.

Taking his word for it on the manipulation?

[Sockatume]

He wasn't caught "manipulating" anything. He wrote some articles that took a specific stance on naked shorting, and which carried his name. He wrote a book with a chapter on the same. He edited Wikipedia to reflect this, and has been outed. How is that manipulation? Well, let's look at the course of events:

Writer/journalist edits own Wikipedia article, article of Overstock.com CEO, article on naked shorting to reflect own stance. CEO of Overstock.com reads Wikipedia, disagrees, gets in edit war. CEO starts personal attacks on writer/journalist's own wikipedia page. CEO is blocked. CEO registers new account. CEO is blocked again. Repeat until CEO's IP range is blocked. Writer/journalist continues to edit, by virtue of not being caught doing anything as absurdly mean.

CEO goes on campaign against Wikipedia editors who banned him. (Too much to explain here, but he won't be happy until he has the names, addresses, and affiliations of everyone even tangentally involved in his "silencing".) CEO goes to The Register declaring that writer/journalist and Wikipedia are in cahoots to promote the naked shorting of his own company. Regular media reports his theory, less than flatteringly. CEO goes back to The Register declaring that writer/journalist and Wikipedia are in cahoots to promote naked shorting in general and are culpable in the current financial crisis, and that he has proof, but does not present it. I'm sure the regular media will happily report his conspiracy theory, but it's going to be hard to do so in a flattering way.

Seriously, this is a story about Wikipedia editing, not naked shorting, and not the financial crisis. Dramas like this unfold all the time, except it's usually an alleged bias for/against Israel/intelligent design/the moon landing hoax/Yu-Gi-Oh The Abridged Series instead of an issue with a dubious trading practice. The only "media manipulation" in the whole thing is that Byrne is getting a sympathetic journalist to depict the whole thing as a conspiracy, and it's backfiring horribly for him.

Re:Taking his word for it on the manipulation?

[makomk]

He wasn't caught "manipulating" anything. He wrote some articles that took a specific stance on naked shorting, and which carried his name. He wrote a book with a chapter on the same. He edited Wikipedia to reflect this, and has been outed. How is that manipulation?

On Wikipedia, he also denied that he was Gary Weiss, and got anyone who tried to claim this banned on flimsy grounds. In addition, he edited articles on himself and his book to make himself look good, with the assistance of some fairly influential Wikipedians, such as SlimVirgin (who I suspect he won over by helping her push her POV in a couple of areas of interest to her). He also repeatedly abused multiple accounts to get his way, and was aided and abetted by the unwillingness of the Wikipedia admins to investigate or to do anything against him.

Writer/journalist edits own Wikipedia article, article of Overstock.com CEO, article on naked shorting to reflect own stance. CEO of Overstock.com reads Wikipedia, disagrees, gets in edit war. CEO starts personal attacks on writer/journalist's own wikipedia page. CEO is blocked. CEO registers new account. CEO is blocked again. Repeat until CEO's IP range is blocked. Writer/journalist continues to edit, by virtue of not being caught doing anything as absurdly mean.

Wikipedia admins also permanently blocked anyone who (correctly, as it turns out) claimed that he was Gary Weiss or that he was abusing sockpuppets again, on the basis that they must be said CEO. Also, as I recall, the "personal attacks" were mainly (correct) claims that Weiss was up to no good on Wikipedia.

As for what Gary Weiss did wrong? Editing articles on which he had a conflict of interest, including the article on himself, and turning Overstock-related articles into attack pieces. Repeated abuse of multiple accounts to get his way in disputes - for some reason, the admins let him continue editing each time he was caught, despite him never admitting to anything or making any promises to not do it again. Lying through his teeth to everyone about all this.

Subtlety

[Morosoph]

Check out my latest journal entry if you think that I believe in the status quo.

There are positions more subtle than "everything is right" or "everything is wrong" with the marketplace. The mechanism for arbitage is simple, and the short seller who gets it wrong loses out. I suppose that your answer is that if the price is too high, well. It should stay there!

So many folks are blaming the banks woes on short-sellers, but why are banks having to pay attention to something as ephemeral as share price in any case? Surely it's cash-flow and the state of their books that counts. The existing state of regulation is barmy.

You got your easy mod points I see. Well done.

Re:Subtlety

[PopeRatzo]

Morosoph, I've read your journals before, and I didn't mean to suggest that you believe in a status quo.

I was trying, in a clumsy way, to point out that anyone who still believes that a "free market" is going to help us in any way is way off base.

In fact, I'm wondering if the Nobel committee can take away Milton Friedman's awards and give Prof Friedman some sort of "golden turkey" award for being so absolutely wrong.

Re:Subtlety

[Morosoph]

I was trying, in a clumsy way, to point out that anyone who still believes that a "free market" is going to help us in any way is way off base.

I don't know. Bankruptcy for these institutions is making a lot of sense to me right now. Bail out the depositors, to be sure; stage the bailout is there's an inflationary risk. But the banks themselves? No welfare for them!

Re:your sig is wrong

[rohan972]

I appreciate any well-thought-out arguments against my highly controversial signature. This category certainly includes yours.

Thank-you.

Unfortunately in America if not in other places, someone writing fantasies about children, drawing and/or selling cartoons or CAD-created CP scenes, or, being a minor, taking pictures of oneself nude, is illegal. It is mostly against these laws that I rail.

I see your point, but your sig does not make that distinction. Perhaps you would consider addressing that. To take what I see as the most clear cut example, I agree a teen taking pics of themselves certainly ought not to be illegal and it is a great injustice to label someone as a sex offender for that.

Furthermore, and this does nothing to diminish your point, I believe that possession of stolen goods should not be illegal. I think only payment for stolen good should be illegal.

Personally I think knowledge rather than payment should be the determining factor. If you get a stolen dvd player given to you by a friend and you know it is stolen I don't see how that isn't being part of the crime. On the other hand, if you pay for a dvd player from a retailer and later it turns out that he stole a truck load of them, I don't see how you are a party to it, even though you paid.

Someone receiving CP though automatically knows the illegal nature of it and are therefore a party to the crime by receiving benefit from it, whether they paid for that benefit or not. I can see a benefit to having sufficient penalty attached to it that it would convince people to betray their source for a suspended sentence or a plea bargain. I believe the saying goes "A house divided against itself cannot stand". I'm not in favor of giving up our civil rights to achieve that, but I don't see viewing porn as a civil right.

Redundant

[ishmaelflood]

Yeah, like punters are making thousand dollar plus wagers based on Wiki.

We don't even trust the real grown-up newspapers, never mind the random Brownian motion of the brain cells of a few basement-dwellers (Wiki).

My portfolio is up about 5% over the last three months, how are you cunts going?

Me thinks, we accuse ....

[OldHawk777]

Me thinks,

We accuse the worker/drone bees of many harmful blinding stings, but fail to suspect the C*O "Market Queens" and many "Politically Correct" (PC for PTB) things done globally.

The injuries (suffering, deaths, wars) are unintentional gapping economic wounds caused by dumb negligent sharks in a greedy feeding frenzy.

This is common when the shark masters (Unaccountable Leaders) gleefully anticipate the gladiatorial sacrifice of troublesome Slaves (Unrepresented Public) and are rewarded with $700B to fail USAgain.

Godddd bless them one and all.

Naked Short Selling

[jetl]

If I sold my neighbors home without owning it....off to jail i'd go... But if i'd sold stock that I did not own that would be ok?..........NOT! But that is what is happening on Wall street each and everyday. Every Mom and Pop is being 'gamed' by unregulated Hedge Funds and other entities while being protected by the very agency(SEC) that is suppose to protect us!! Looked at you 401K lately??? Bailing out Wall Street just enslaved your children and their future children for many years to come....... while some Hedge Fund criminal just bought his sixteen year old daughter a Porshe... as your 401K took another hit! Wake up Sheople!!!! Speak up, contact your representatives,change is necessary!!

Re:I also read that

[pete-classic]

Almost certainly because "funny" doesn't carry karma, and the moderator thought you deserved a point.

-Peter

If you think CNN is (D), you're a wacko.

[plasmacutter]

Sorry, but CNN is at best center-right.

It's beholden to the conglomerates which own them, to the companies which advertise to them, and the people who anchor for them are in the upper 1% of the economic scale.

They never give coverage to the other side of the copyright debate.

They never correct the distortions from faux-news which they repeat shamelessly.

They never cover mass protests of the FTAS corporations use to rob our nation blind.

They never cover real issues with politicians, or ask why third parties are not covered.

They feed the system just as much as murdoch's conservative empire does.

Re:Oh give me a break -- why Mr. Ad Hominem?

[WriterJudd]

GWH, Almost everything you've just written is untrue. Either you know that and don't care, or you're happy to repeat any libelous thing told to you. One way or the other, the world needs to know that this is the caliber of person regularly elevated to the level of "admin" on Wikipedia.

Re:Oh give me a break

[WriterJudd]

As mentioned in the Register story, the emails are reproduced here.

The irony.

[plasmacutter]

You're linking wikipedia to support your argument.. in a response column to a story about the fallibility and manipulation of wikipedia.

Re:The irony.

[MobyDisk]

lol, I know! I thought of that when I did it. :)

Sigh, at it again

[khallow]

Mr. Byrne has been jousting at naked short sells ever since his company got hammered by a drop in stock price, which he blames solely on naked short selling. Further, he apparently feels short selling is morally wrong and has been generating this sort of drama for some time. I don't see anything serious here with his accusations. It's just another junk story passed on by slashdot.

Re:Sigh, at it again

[Achromatic1978]

"Regulation SHO also created the "Threshold Security List," which reported any stock where more than 0.5% of a company's total outstanding shares failed delivery for five consecutive days."

OSTK has been on the REG SHO list for not five consecutive days, but THREE YEARS. There are people holding, and trading stock of his company THAT DOES NOT EXIST, for YEARS. I think he's probably got fair grounds to claim that his stock price has been hit by short selling.

The problem there is more odious

[Moraelin]

The more worrysome problem there, though, is that the USA system (and probably a few others) works on IOUs that are indistinguishable from real shares even to those who own them. In your car analogy, essentially you'd sell the car, but when mom looks in her garrage, she still sees the car there.

But analogies aren't even necessary, let's look at the real thing. Let's say we have the following actors: Mr Investor who owns 1000 shares of IBM, Mr Broker who does the shorting, and Aunt Emma who's gotten into her head to invest her savings into IBM stock. Now the initial stages of shorting look like this:

1. Normal shorting.

Mr Broker borrows the 1000 shares from Mr Investor, and replaces them with IOUs. Then he sells the 1000 shares to Aunt Emma.

Hopefully temporary outcome: Mr Investor now owns 1000 IOUs for IBM shares, Aunt Emma owns 1000 IBM shares.

2. Naked shorting.

Mr Broker doesn't bother even locating Mr Investor, and just sells Aunt Emma some 1000 IOUs.

Hopefully temporary outcome: Aunt Emma now owns 1000 IOUs for IBM shares, Mr Investor still owns his 1000 IBM shares.

The problem, the way I understand it, is that in both cases, the IOUs are indistinguishable from the real thing by anyone outside the DTCC. (The big hub where those transactions take place.) In both cases, both Aunt Emma and Mr Investor can look at their portfolio at any given time, and they _both_ will see that they own 1000 IBM shares. Genuine shares, not IOUs.

In both cases, 1000 shares just became 2000 shares. And the effect can further cascade, as Aunt Emma's shares can be loaned by somebody else, creating another 1000 IOUs that are indistinguishable from real shares. And so on. At some point 10 different people can show up and demand vote with their 1000 shares each, but they're all the same 1000 shares, duplicated in that process. And someone can look and see the extra shares around artifficially inflating the supply on the stock market.

Basically to go back to your analogy, after all, temporarily Mom _and_ this guy own the same car as if it were two different cars. And the car can be further duplicated down the line like that, until the whole bloody neighbourhood owns a car each... and they're all the same car: mom's 2003 Saab.

I wouldn't have a problem with it, if the IOUs were clearly marked as IOUs, and not as real shares. Then either Aunt Emma or Mr Investor can look at their portfolio and go, "ah, I'm still owed 1000 shares by that guy." But they don't. They both see that they have 1000 shares.

I think understand the reasoning behind hiding those details. After all, Aunt Emma paid for her shares, might as well hide the details, delays and imperfections in the system, and just pretend that she owns the shares already. The actual transfer will happen in the background, all will balance out, and she doesn't need to worry her head with all that. Ain't life grand, when the system just makes things work in the background, and you don't even have to know when the actual transfer happened or how?

Well, yes, except when it fails. The more obvious way is when you still have the IOUs, but the person owing them to you just went out of business. Refco's fallout apparently left hideous numbers of IOUs out on the market, and nobody except the DTCC can tell which are real shares and which are IOUs. As long as the two are exactly the same for everyone else, it doesn't even matter if it was normal shorting (and Mr Investor is left holding the IOUs thinking they're real shares) or naked shorting (Aunt Emma is.) In both cases, some duplicate shares are left on the market, and are screwing not only the companies, but also the individual investors. But then there's obviously also the situation where the system is gamed and IOUs are just left around to accumulate, at either end, pretending they're real shares.

I just can't see how or why that kind of a system is even legal.

Re:The problem there is more odious

[rufty_tufty]

Let's remember how banks work though - for my example assume we only have 1 bank in this economy:

Aunt Emma has $1000 of saving which she puts into the bank.
Farmer Gyles Goes to the bank and asks to borrow $1000 to spend on a new barn.
The bank says, "Ok we'll give you the mortgage, but if you mess up we'll repossess your farm and sell it off to make back the money"*
Farmer Gyles employs a number of labourers to build this barn who all put all the money from this back into the bank to save for a rainy day.
As far as the bank is concerned it has $1000 in the vault, a Gyles who owes it $1000 + interest, and the bank owes $2000 to its depositors.
The bank in theory could then go on and lend the money out again and again as long as it had confidence in it's debtors and as long as the investors didn't all suddenly demand their money back.
The point is with the combinations of IOUs and creditors then $1000 has become $2000.

This is fundamental to how the banking system works - how else would you have a bank operate?
Yet if you replace the term $ with a stock unit and suddenly it should be illegal?

*Obviously you would never lend the full $1000 out again, you'd keep some in reserve, but this simple example illustrates the principle.

Re:The problem there is more odious

[Moraelin]

Yet if you replace the term $ with a stock unit and suddenly it should be illegal?

1. How about, because if you replace it with _anything_ else, it is already illegal? It's called counterfeiting.

Let's give up on the car example, and use something where similarly the price is mostly a function of how much the market believes it's worth. Like, say, a Rolex. I'm the broker, dad has a Rolex, Uncle Fester wants to buy a Rolex. So now we have, as a direct equivalent of how the system works now:

A. Normal shorting: I swipe Dad's Rolex and replace it with a Chinese counterfeit one worth pennies, instead of an IOU. Nobody will know the difference, hopefully. I sell the real Rolex to Uncle Fester. (On the hope that later I'll be able to buy another Rolex cheaper and replace the fake one with it.)

B. Naked shorting: I don't bother with that, I just sell the counterfeit Rolex to Uncle Fester. (On the hope that later I'll be able to buy another Rolex cheaper and replace the fake one with it.)

The problem is: in both cases now there are two Rolex watches out there, when the real company sold only one. It not only devalues the status symbol for those who bought one, it also messes up the company's market.

And it's _already_ illegal. Why _wouldn't_ it also be illegal when the counterfeit goods are shares? Yes, we tollerate that for money, based on a complicated theory of why that multiplication effect is actually desirable and why we think we can control it. But that doesn't automatically mean you can clone everything else with impunity.

Do you see any aspects of the watch analogy that don't apply to shares? Technically speaking, even the dillution of the brand is exactly like that. A company issues a certain "brand" of stock. That's its trademark in the stock market, so to speak. By flooding the (stock) market with clones, I fuck up the supply side and dillute their brand too.

Except in this case (i) it can fuck a company up even worse than counterfeit goods, and (ii) there isn't even a way to tell which goods are counterfeit and which aren't.

2. And we're not just talking about creating more shares (the trader could just issue its own stock there, if they wanted to), but targeting a very specific company and deflating its shares. For both itself, and its investors. It's predatory in nature.

As another analogy: stock being sorta a different kind of IOU (you can vote to break up the company and take your share of the assets, for example), issuing extra stock in someone's name is really like issuing an IOU in their name... without even asking that first. If I'm the broker and you're the company, it's like me signing IOUs in your name. Which again, would be illegal if anyone did it with anything else than stocks. If I went and sold half the ownership of your house without actually owning it, you wouldn't argue that it should be legal, you'd want me thrown in jail. So why _should_ it be legal with stock?

3. As I was saying, the problem isn't that IOUs exist, but that they're indistinguishable from the real shares. (Except to the DTCC, but they're not telling.) In the bank example, you can tell which is the IOU and which is the money. In the shares example, you can't.

If I had an IOU for money signed by Refco, you'd know it it's worthless since they went bankrupt. If you had an IOU (marked as just an IOU) for Sedona shares, you'd know you didn't actually get the shares yet, and again they're bankrupt so you probably never will get them. You wouldn't show up at a shareholder meeting to vote with that IOU, for example, nor try to sell it back to Sedona if it ever bought it's stock back. But when they're indistinguishable, exactly that kind of thing can and does happen. In reality, if you have an IOU for Sedona shares issued by Refco, it looks like the genuine thing and entitles you to everything that a real stock does. A rogue trader essentially issued stock in Sedona's name, with all the rights that that entitles one to. And that is just wrong.

Re:The problem there is more odious

[rufty_tufty]

For simplicity I'll just take the first point{otherwise this would get a very long post}:
"Normal Shorting: I swipe Dad's Rolex and replace it with a Chinese counterfeit one worth pennies, instead of an IOU. Nobody will know the difference, hopefully. I sell the real Rolex to Uncle Fester. (On the hope that later I'll be able to buy another Rolex cheaper and replace the fake one with it.)"

Nope - totally wrong.
In normal Shorting I ask to borrow my Dad's Rolex telling him exactly what I'm going to do with it.
I sell his Rolex now while the prices for Rolexes are high, planning to buy a replacement one for my dad next week when I expect the price of Rolexes will have fallen. If I am correct, then I make some money (assuming I made enough to pay for the loan of the Rolex). If I am incorrect and the price goes up, then I have to go onto the market and buy him a replacement. One way or the other a week later I give him back his Rolex and some money as a payment for the loan of the watch. Whether I profited or not from the deal he doesn't care as long as at the end of the loan he gets back a Rolex and a hire fee.
No counterfeiting required.

The replication you are so concerned about comes from a simple thing. If my dad was listing his assets (say to an insurance company) he'd rightfully say that he owned a Rolex the entire time (after all he only loaned it to me). The person who I sold it to clearly owns one; I however owe my dad one. 1 + 1 -1 = 1.

I don't see the problem here.

Reminds me of...

[elloGov]

This reminds me of Branson vs British Airways saga. There is certain foul play involved and only one way to end it: LAW SUIT! As for a personal moral stance; I always believed that making money out of thin air is immoral, lazy and evil. You want to have an income? WORK and CONTRIBUTE TOWARDS PROGRESS.

Some more comment

[cutty6343]

Now the main stream Media are still not getting it do they? Everything will be "discovered" in a few years.

Re:Oh give me a break -- why Mr. Ad Hominem?

[Achromatic1978]

Hmmm, lots of weasel words there. "Generally concluded", "fairly unambiguous" - come on, the only people on WP who were even desperately clinging onto the notion that GW might not be Mantanmoreland were those who'd most vehemently fought for him and had the most to lose credibility and reputation wise if it were shown to be true, including some for whom evidence had came out showing that they in all probability knew it to be the case a long time ago.

Placing viruses on people's computers? That's a really serious accusation to make George, claiming criminal activity by people - you want to make really sure you know what you're talking about. Embedding a web bug in an email or a web site is not a virus, no matter how Slim spinned it, and tried to distort the issue to be about that, rather than how, within 5 minutes of receiving the email, Gary Weiss had also received the email.

Claiming people were "felony stalked" is also another serious accusation to make, George, especially on hearsay. But hey, anything to make your side of the argument.

"Illegal access to computers"? Seriously, George, you've accused Judd and Patrick of MULTIPLE FELONY CRIMES in this rant of yours, with either no evidence, or directly refuting evidence. Why so vehement, George?

Chomsky? How orignal....

[Gerhardius]

I am always amazed at the chattering about Chomsky & Hermann when they did not introduce a single new concept in media analysis. Jacques Ellul's "Propaganda" and many other works do far more than a facile anti-capitalist analysis, no wonder there is little mention of such a major work in the area in any of Chomsky's media analysis efforts. I believe this oversight is due to Ellul's broader, and hence more damning, critique of propagating influences: it isn't just the other side that makes propaganda and attempts to influence people. Accepting this would be very difficult for Chomsky, and heresy for his legions of followers eager to parrot his latest opinion.

Re:Oh give me a break -- why Mr. Ad Hominem?

[georgewilliamherbert]

I have seen emails and heard recordings of voicemail and phone calls left by Mr Byrne and Mr Bagley. I am familiar with California stalking and terroristic threats laws due to an unrelated incident. Had victims in California filed police reports, I believe both Mr Byrne and Mr Bagley would have had felony warrants outstanding.

I've seen multiple independent reports of web tracking bugs much more sophisticated than mere tracking images, including viruses and malware, and at least one report of a keylogger virus uploaded from their website. Tracking images are merely slimy. The other activity appears to have broken federal computer crime laws.

I am discounting in this any claims made by the persons we now reasonably believe were Weiss. This is reports from other, completely unrelated people. Even discounting pseudonymous user Slimvirgin's experience, there were many many victims in this, and many instances that rise to the level of computer crime or stalking.

Re:Oh give me a break -- why Mr. Ad Hominem?

[julesh]

Weiss had a conflict of interest in this matter, as a journalist covering the topic area.

I don't quite understand how being a well-known lay expert in the topic (as a financial journalist must be to do his job adequately) causes a conflict of interest. Could you expand on this?

Re:Oh give me a break -- why Mr. Ad Hominem?

[georgewilliamherbert]

He was engaging in issue advocacy (as were Mr Byrne and Mr Bagley).

Mr Byrne's interest in the topic is an open conflict of interest - if disclosed, others can monitor to make sure that one doesn't insert improper bias. Byrne disclosed where he was coming from, and in that regard wasn't causing a problem. Weiss' edits, as a journalist and columnist covering the issue and editorializing on the issue, were helping to try and establish his personal opinion on the topic as the neutral, standard opinion represented in the Wikipedia article.

A reporter who does not engage in writing opinion columns or editorials would have little conflict of interest, as long as they didn't use their own writing as a "reliable independent source" without disclosing that, or use the Wikipedia article as a source for their outside writing. Weiss was editorializing and writing opinion columns and advocating on the topic. Doing so secretly, using a cover identity and intentionally lying to people about the identity, forms a conflict of interest.

Patrick Byrne has a lot of credibility

[ricktou]

He's been predicting this for years and the courage and stamina to keep going strong. See DeepCapture.com for details, and the ugly truth, if you can handle it.

Re:Oh give me a break

[The Bungi]

Sorry but after so many "incidents", in my mind "Wikipedia administrator" == not trustworthy.

Perhaps not you personally, but your peers have earned that mistrust with a steady hand over the past few years. When you're busy creating and ruling little fiefdoms and exercising your alleged "powers" instead of actually trying to make a better encyclopedia, you fail it. Most of you lost sight of the goals of that website a long time ago.

American journalism is hurting.

[schlick]

FTA: "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."

In order for a democracy (as well as the free market) to function, the people need to be able to make informed decisions. For that we need information. For that we need healthy press. Currently it isn't. Dan Rather agrees

Re:Oh give me a break

[Snowspinner]

I have never been on the arbitration committee. Please get your facts straight.

Long after the train has left the station...

[Snowspinner]

But for anyone still reading this (and reading at the 1 level, since one assumes this comment ain't going anywhere in moderation), if you want a sane take on naked short selling that isn't from someone with fingers all over the pie, NPR did a piece on naked short selling recently as part of their regular podcast/blog called Planet Money (which is a fantastic primer on the financial crisis in general).

http://www.npr.org/blogs/money/2008/09/listen_up_naked_short_selling.html is the link for the piece on naked short selling, and it's absolutely worth a listen.

Re:Mark Cuban on CEOs who whine about shorts

[makomk]

Regarding the SEC, they have block *any* short selling (naked or otherwise) of financial stocks.

...but first, they restricted naked short selling.

IMHO, this is utterly loony, and a continuation of the "blame the shorts" game that started in the Crash of '29. It was convenient to have a political boogey man to divert attention from the real issues then, and it is very convenient now.

As I understand it, various inherent limitations that prevent covered short selling from being used in a way harmful to companies (such as the limit due to the amount of stock available to buy) don't apply to naked short selling.