Sunday, July 31, 2005

Dateline - 10 Minutes Of Empty Air

Well, I just saw the long anticipated Dateline piece, two plus years in the making, wherein the DTCC stock borrow program and its creation of electronic counterfeit shares (which are treated as legitimate shares by the system), the abuse of loopholes by unscrupulous and powerful hedge funds, the SEC’s Regulation SHO and its lack of teeth, and the SEC’s complete lack of any real enforcement of prompt delivery rules that have been on the books since the Commission was formed, were all revealed in compelling and alarming detail.

I saw a clear description of legitimate short selling (where speculators sell stock into the market that they've borrowed from lenders, in the hopes they can buy the stock back at a lower price when they return the shares) and the distinction between that lawful practice, and the illegal practice of failing to deliver/naked short selling (where stock is sold short but never borrowed, thus never delivered to the buyer, and instead the system treats electronic IOU’s/ or counterfeit shares, as legit – defrauding the buyers by representing the bogus article as genuine).

I saw an articulation of the damage failing to deliver/naked short selling can cause, by depressing a company’s stock and impairing their ability to raise capital, and listened with rapt attention as the robbery of shareholder value was exposed for all to wonder aloud at - perpetrated by the clearing system and the brokers that own the system.

Or rather, I didn’t.

Instead, what I saw was a 10-minute puff piece that covered none of the above, and could have been slapped together by a couple of college student filmmakers during a Tijuana binge-drinking weekend - it clarified nothing and educated nobody, and was long on how a guy lost everything when his company went belly up, and short on anything else. It followed the trials and tribulations of Eagletech, and made it seem as though the entire FTD thing is just a few guys at Smith Barney who might have done something "too difficult to explain" called naked short selling, that is being pursued by attorney John O'Quinn, who has filed a bunch of cases, some of which have been dismissed. After watching it, I knew exactly nothing more about any of it, besides the cautionary bromide that "investors should be careful" in the stock market.

That's it.

Some attorney is filing suits over something too complicated to even try to describe, which can hurt companies and investors, and which has to do with the stock market.

Now, I could express considerable surprise that the best NBC could do after spending years, was to generate a piece that makes the latest late night spray-on-hair infomercial look substantial. I could bemoan the fact that they missed the essence of every noteworthy aspect of the largest financial scandal of the century. But I would be a liar if I did.

I have learned a few things since getting involved in this issue. The first is that powerful interests want to keep their culpability in the systematic destruction of companies for profit quiet, at all costs. The second is that money buys power, and power buys the ability to silence opposition. The third is that our regulators are complicit, at the very least, through their inaction, and likely some are flat out dirty and aiding and abetting the criminals who are gaming the system. The fourth is that nobody has any interest in fighting for shareholders or investors – all the money is made screwing them. The fifth is that most of the media lies, or selectively filters what is reported, creating a Pollyanna-ish view of the world, where warfare is freedom fighting, genocide is ethnic cleansing, corporate fraud and lying becomes restatement, and moral relativism is the order of the day – aphorisms abound, positive thinking can achieve anything, and ignoring ugly truths is essential to peace of mind.

Given these lessons and the resultant reality they describe, could anyone have reasonably expected the Dateline piece to have any more gravitas or duration than an N’Sync ballad? Was there any basis for a hope that an issue that the mainstream media has studiously ignored for 8 months now would be exposed by a show best known for hard hitting interviews with second string pseudo-celebrities?

You could have learned more about naked short selling and DTCC, SEC, and broker/participant duplicity by watching an episode of Being Bobby Brown. And it likely would have been more compelling and coherent, to boot.

Folks, this was a non-event that was, IMO, neutered to the point where it was a non-issue. You don’t spend two years on a piece and come up with this sort of empty air accidentally. What you just saw was an example of why the mainstream media doesn’t matter any more, and why the bad guys are confident of their ability to continue to steal a generation’s retirement. They get to control the message, and sculpt public opinion, and they have the ability to kill anything that could even hint at exposing them.

If we are going to get this noticed and acted upon, it will be because activist groups like NCANS raise awareness by advertising and subsidizing behind the scenes action, not because 60-Minutes needs an Andy Rooney filler.

We are all poorer for the opportunity that was just squandered, and should be fighting mad. But also wiser. Because we need to be smarter than the bad guys are. And placing our hopes in someone else doing the heavy lifting is a fool’s errand.

Same as it ever was.

6 Comments:

Blogger n-tres-ted said...

Yes, I saw it. If I hadn't seen your alert, I would not have watched. Even watching, it was difficult to tell for a while that it was about this subject. I kept listening for the term "naked short selling" and finally heard it when Insana essentially said it is something that is legal sometimes and too difficult to describe. Certainly not the kind of report designed to get any greater response from the audience than a "that's too bad." Any more recent news from the Houston attorney about progress in his cases?

8:27 PM  
Blogger bob obrien said...

I haven't heard anything about how his cases are going from anyone.

I too was wondering what the segment was about for about the first 4 or 5 minutes. Maybe I'm being too hard on it, but it seems to me like the kind of thing you run when you want to tell everyone you ran something, thereby offloading any responsibility to ever run anything more substantiative. Then again, perhaps I'm just overly fixated, and the wholesale theft of hundreds of billions is a so what - isn't there a new episode of Survivor coming up soon?

10:16 PM  
Blogger n-tres-ted said...

Bob,

Seems to be little interest in the subject outside the circle of people who have directly suffered great damage. I have raised the subject with several individuals in the securities/investment industry and they look at me almost as if I must be wearing a tin-foil hat - as if that type of practice can't possibly happen.

Does the Houston attorney have a copy of the disclosure letter showing the FTDs outstanding? I wonder if sending that letter to a Senator or two might gain some assistance.

9:04 PM  
Blogger bob obrien said...

There is a list of fails, by day, for just the NYSE and NASDAQ posted at the NCANS.NET website. Or look down a few articles here and you will find a link.

They number between 100 million and 260 million, per day.

So they are happening, and with regularity. The ex-clearing problem is likely far worse. So you could conservatively double the "official" FOIA-exposed numbers and be low, IMO.

The reason everyone pretends that the wholesale defrauding of a nation isn't happening is because most everyone that knows enough about the system to understand it is benefitting from it somehow. And those that don't believe it would rather not dig too deeply - sort of like those that denied our involvement in atrocities in Vietnam, and now Iran, or our CIA's involvement in Central America. There are just some things that you don't want to know, as they destroy your carefully constructed dream world filled with convenience and happy oblivion, and force you to confront the ugly reality of the intersection of money and power.

There are no new ideas.

10:52 PM  
Blogger tom said...

Bob,

I agree with you the naked short selling is ignored. At the same time don't overlook the fact on the opposite side where folks drive prices up way past where they should ever,ever be. There is fraud in all ways to sunday in the equity markets.

At least Elliot Spitzer is taking care of some of the fraud.

3:58 PM  
Blogger bob obrien said...

Pump and dump is also manipulation, and as such is a violation of 10(b)5. Unlike running a stock up beyond where it "should" trade, however (which implies that someone "knows" at what level a stock should trade), naked short selling is actually an outright fraudulent sale wherein the share is never delivered.

So there is a difference. It would be sort of like if the manipulators that ran a stock up never delivered any cash to pay for the stock they bought. Or worse yet, delivered IOU's for the stock, which were represented as being actual cash to the sellers.

The two are actually both sides to the same coin, and are actually done by the same hedge funds. First they run it up, then they tank it, making money both directions.

And both plainly illegal.

4:15 PM  

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