Friday, July 22, 2005

The King Is Dead, Long Live...

Today, Annette Nazareth was nominated for one of the two available Chairperson seats at the SEC.

Annette, as you may or may not be aware of, is married to one of the New York Fed Governors - you know, one of the guys who runs the system of which the DTCC is a part - the privately owned Federal Reserve Banking System (whose Federal Reserve banks are all privately owned). For anyone that doesn't know it, the U.S. is the only modern first world (or second world, for that matter) country that has a privately owned central banking system. Kinda makes you want to ask why that is, and who owns the banks that print the money for the country, but that is a different subject. Suffice it to say that 99% of the U.S. believes that the Federal Reserve is a part of the government, when in fact the only thing governmental about them is the Federal Reserve Board, the oversight and advisory board that Greenspan chairs, which does have government oversight and is a quasi-governmental agency.

Anyhow, Annette is noteworthy because of her "let them eat cake" pronouncements when investors correctly noted that it appeared that the SEC had allowed the system to conduct sanctioned bear raids on the Regulation SHO list companies, presumably to shake loose shares from those receiving margin calls and being stop lossed out of their savings, so that the participants who had Failed to Deliver could solve their problem with sweetheart deals on cheap shares at the expense of Joe Sixpack, whose retirement was vaporized to create the "buy side liquidity".

When this ugly suspension was pointed out to her, did she immediately initiate an ivestigation of the specialists and market makers, to see whether the sell side pressure had been legitimate selling or manipulated selling in order to create a downward spiral? Of course not. The same specialists who two months later would be sanctioned for being outright crooks would never do anything that dishonorable. Instead of even giving it a cursory look, she went on record with her unique perspective that investors were basically a bunch of whiners who were angry their stocks hadn't gone up. Joe Sixpack could just buck up, and get used to the idea of working a fast food gig into his seventies, so that Wall Street could cover the shares they'd sold and never delivered, at fire sale prices. I mean, it's not like they made a fortune selling the shares naked in the first place or anything. Why would they want to actually have to cover them and lose money? When you are talking hundreds of millions of shares, every few billion dollars counts.

Honest. Couldn't make this up.

Even as the daily fails were in the 150-200 million PER DAY range, she was blaming the investors for being ingrates, and ignoring the odd propensity of most of the SHO list companies to experience 30, 40 and 50%+ declines in their prices in the first 3 months of this year, when one would have expected that buying to cover the fails would have had the opposite effect.

But Annette never met a short seller or a Fail to Deliver she couldn't love. And the investors that were being fleeced out of their life savings and their retirements were speculators who deserved what they got. It was the first time any SEC employee had ever gone on record with such an arrogant, high handed and dismissive stance.

But she wasn't fired or disciplined. Instead she was tendered the Commission's highest honor.

Even the WSJ withdrew their support for Annette, recognizing that you couldn't have selected a worse chairperson, but no matter.

Does anyone feel a little sick?

7 Comments:

Blogger uncleed said...

Bob,

It seems that the latest bit of news and developments are painting a bleek picture. Is the situation getting worse? Do you have any aces up your sleeve so to speek? I'm not looking for details or specifics, just wondering if there's anything positive out on the horizon.

Take care,
Uncleed

1:12 AM  
Blogger EdwardB_3 said...

While I agree that that the fox seems to have been let into the henhouse, the characterization of the Fed is not correct. From its website:
Who owns the Federal Reserve?

The Federal Reserve System is not "owned" by anyone and is not a private, profit-making institution. Instead, it is an independent entity within the government, having both public purposes and private aspects.

As the nation's central bank, the Federal Reserve derives its authority from the U.S. Congress. It is considered an independent central bank because its decisions do not have to be ratified by the President or anyone else in the executive or legislative branch of government, it does not receive funding appropriated by Congress, and the terms of the members of the Board of Governors span multiple presidential and congressional terms. However, the Federal Reserve is subject to oversight by Congress, which periodically reviews its activities and can alter its responsibilities by statute. Also, the Federal Reserve must work within the framework of the overall objectives of economic and financial policy established by the government. Therefore, the Federal Reserve can be more accurately described as "independent within the government."

The twelve regional Federal Reserve Banks, which were established by Congress as the operating arms of the nation's central banking system, are organized much like private corporations--possibly leading to some confusion about "ownership." For example, the Reserve Banks issue shares of stock to member banks. However, owning Reserve Bank stock is quite different from owning stock in a private company. The Reserve Banks are not operated for profit, and ownership of a certain amount of stock is, by law, a condition of membership in the System. The stock may not be sold, traded, or pledged as security for a loan; dividends are, by law, 6 percent per year.

7:59 AM  
Blogger Jer. 9:24 said...

It is sad but not surprising that industry lapdog Narareth has been appointed as an SEC Chair--and that it was at the insistance of NY Senator Schumer, who of course counts Wall Street as his largest and most important constituent group.

As Bob pointed out, even the WSJ --who can see, hear and especially speak no evil when it comes to securities counterfeiting, settlement failures, downside market manipulation, etc., by the industry the WSJ caters to-- spoke negatively about Nazareth's promotion. WSJ must not have gotten the memo about her from Wall Street before writing their editorial "dissing" her.

Nazareth KNEW, likely before any of us, about this scam and the magnitude of it. Yet she lied publicly and insulted the victims of the scam she and her ilk continue to cover up, when a simple "no comment" or typical political non-answer would have sufficed.

Well, at least she won't be able to do more damage in the Division of Market Regulation itself. Maybe now an honest regulator will be entrusted with market regulation at the SEC.

I am truly hopeful that Mr. Cox will prove to be a man of integrity, who will seek to restore a legitimate capitalistic securities market and hold the securities industry accountable for the crimes they have committed and continue to commit against the investing public.

If so, he will certainly meet resistance from the likes of Nazareth and her industry "partners" --or should I say, "masters."

Let's face it, in every major securities industry scam uncovered in recent years, the SEC has not only appeared to be the last to know, but has been dragged kicking and screaming into enforcing their own regulations when it meant going up against the securities industry.

This scam dwarfs all others and will likely, because of persistent regulatory failure at the SEC and SRO levels, eventually result in systemic collapse AND a taxpayer financed cleanup at least on the magnitude of the S & L scam. Don't expect Congress to do anything in an election year (and it is ALWAYS an election year).

This scam will be dealt with when State regulators (though it appears the NY politician Spitzer will NOT be the leader) start serving subpoenas and State attorneys general start filing criminal indictments against the perpetrators. Bob, any new word on that front?

Finally, remember that there WILL be a day of reckoning for all thieves, manipulators--and corrupt regulators. In the words of the one Judge they can never escape, "Vengeance is mine; I will repay. In due time their foot will slip; their day of disaster is near and their doom rushes upon them." (Deut. 32:35).

8:55 AM  
Blogger bob obrien said...

The Federal Reserve banks are privately owned by their member banks.

There are caveats associated with the stock of those banks, such as non-transferability, and operating the banks themselves as not for profit, but that doesn't change the private ownership of the Federal Reserve banks - actually confirms it. They are privately owned.

The Federal Reserve system is the network of these privately owned banks, which are overseen by the government appointed commission/board, which does not own anything. It is regulated by Congress, as are many private industries, and the mechanism for that regulation is oversight over the Federal Reserve Board - a quasi-government body.

So in fact, caveats aside, the Federal Reserve Banks are owned by other banks (i.e. privately) and can thus be termed a private central banking network - either they are government owned (which they are NOT) or they are privately owned (which they ARE).

I have altered the language to clarify (hopefully) this distinction. Thanks for pointing it out - the first rev was ambiguous, I'll agree.

11:37 AM  
Blogger bob obrien said...

Uncleed, there is two ways to view this. 1) You and the rest of the public are just now starting to realize how compromised and inter-penetrated the system is by Wall Street, and that knowledge colors the future in a dark way. 2) SEC Chairpeople mostly make speeches and attend functions and don't really do any heavy lifting, thus she is actually less of a menace than in her current role.

They are not incompatible views, BTW.

I believe that as the blogs take to the investing public what the mainstream U.S. media is reticent to do, that eventually it will become so well known and obvious that the system won't be able to hide behind the "cone of silence" it has constructed as its defense.

You have obviously compromised people running the system who clearly believe that investors are speculators who deserve what they get at the hands of the pros on Wall Street, and that it is not only acceptable but is in fact the way the system was designed.

The ugly part is that they are correct - the SEC has never been chartered with reigning in Wall Street's unbridled greed - the original charter was to "restore investor confidence in the system" after the crashes of '29 and '32, not to ensure that confidence was correctly placed in a fair system.

I maintain that the biggest problem is that the industry has propagated this notion that it is here for any purpose other than to make the maximum amount of profit for itself, usually at the expense of investors. The SEC is here largely to assure us that all is well, not to ensure that it actually is.

Once you are disabused of the naive ideas that the system is fair or ever was, you have a clearer idea of what you are looking at.

As to positives, yes, I do have some things I am working on, which I cannot discuss, but which may help to expose the true lay of the land, and act as enough of a catalyst so that even the most jaded and compromised public servant will recognize that they have to do something.

11:47 AM  
Blogger n-tres-ted said...

Bob,

I have reviewed the disclosure letter you received from the SEC, and it appears to me to be ambiguous as to the number of shares involved in FTDs. I know you interpret the letter as saying on each date the number of shares in new FTDs that occurred on that date only. The letter can be read as meaning that the number of shares involved in FTDs on a specified date is the aggregate number of shares still undelivered on that date, including FTDs from previous dates net of resolved FTDs.

Now I recognize that would still be a very significant problem, but obviously somewhat more manageable than that faced according to your interpretation. Have I missed something in your posting that shows I am in error?

1:22 PM  
Blogger bob obrien said...

I am assuming that it is culmulative, not new daily.

It is still between 5-8% of all trading per day on the NASDAQ and NYSE - and don't bother including the OTCBB stuff in the number, as the fails don't count those in the letter.

Now take that number, and double it, and you have the conservative take on how big the actual fails problem is - ex-clearing is at least as big as the FTD's per my sources, and some of the experts actually believe it is 3X larger. But if we just take the baseline that it is equivalent, we have somewhere around 10% of all volume on any given day FTDs.

Now ask yourself why the OTCBB stuff wasn't included in there. We are putting in an FOIA request for those, but that will likely take several months to get.

My gut says that if you count in the OTCBB and its higher level of fails, you probably could make a fair statement that approaching a quarter of all trades are pure counterfeited BS. That is a WAG, but I'll bet once we see the OTCBB stuff I'll be validated.

Unfortunately there's no way to verify the ex-clearing predicament or the extent of its involvement - but you can listen to the Bear Stearns CC where the counsel describes the SEC's threat to come back and re-evaluate the ex-clearing fails and make them part of SHO - that wouldn't be a threat if the level wasn't non-trivial.

10:35 PM  

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