Tuesday, July 19, 2005

One Emperor, No Clothes. Check. Any Questions?

About a week ago I posted a list at the NCANS site. It is a list, by day, of the number of Fail To Delivers since last March. The list was only for the NYSE and the NASDAQ, and was a partially complete response to a Freedom Of Information Act (FOIA) request by one of our NCANS members. I say partially because it omitted the OTCBB and pink sheet stocks. But, we now understand how many shares are failed on any given day for the last year for the major exchanges.

And it is shocking.

For just the NYSE and NASDAQ, the totals run from 100 million to 259 million shares per day, with the average being in the 150-160 or so million range.

To put it into perspective, that represents between 4% and 8% of the total volume on the exchanges per day, give or take, winding up as FTDs. Not counting the ex-clearing fails, which are of unknown size, but are believed to be at least as large as the FTDs, if not dwarfing them (ex-clearing refers to fails that are held at the brokerage level and never entered into the clearing and settlement system - IOU's passed between the larger houses).

So why is this so shocking?

Well, I personally find the idea that in the neighborhood of 10-15% (counting ex-clearing) of the total volume of the exchanges' volume being FTDs/naked shorts to be alarming. Why, to listen to Mr. Thompson of the DTCC, this is a trivial problem, hardly worthy of his time. And yet the hard numbers show that at times, the FTDs alone amounted to over a quarter of a billion shares per day, at a time when supposedly the industry was thinning out the FTDs (due to the efficacy of Reg SHO, I suppose). Now, using his own numbers, around $6 billion per day are fails. Divide that by the average 150 million fails, and you can begin to see that the problem is not trivial at all, but rather represents what looks suspiciously like a cottage industry that has $30 billion of fails or so per week. Per week. But it's no problem, we are assured. What's a little $2 trillion annualized problem between friends?

And yet nobody has really commented on that FOIA data, except to ignore it.

Doesn't that seem a trifle odd?

Anyone find a 150 million per day fails problem to be more than just a hiccup? No? Yes? If the US Government knew that there were $6 billion of counterfeit T-Bills being passed per day, do you think that would warrant anyone's attention? Every single business day? No? That's a lot of Pentagon hammers, even in this day and age...

This gets stranger and stranger every week, as the apparent strategy is to just pretend that nobody will find out how big the problem is.

Sorry guys. The cat is out of the bag. It is apparent that none of the mainstream media want to tackle the financial crisis of our generation, presumably because they don't want to rock their very lucrative boat. I get it. So maybe if we all continue pretending the emperor is wearing drawers, the rest of the sheep will believe it...

I dunno. I see an ugly naked man trying to pretend that he is dressed. And the numbers support that take.

Question is how long can everyone pretend that those numbers aren't staggering, and an indictment of the entire Wall Street apparatus?


Blogger smokyjoe said...

The Fed looked the other way assuming( hoping) this would be a great way to unlock all those lt gains. They just didn't figure how fast they would become losses. Watch the post Nikkei crash for ideas. Your broker still telling you to hold for the long run? Feds don't want that either...

7:43 PM  
Blogger klipediaman said...

The news media, for better or worse, is apprehensive about publishing catastrophic financial information. During the early '90's when banks were failing, newspapers did not use the term "banking failure" for fear of causing a rush on banks. I guess the press remembers thier role in the 1930's banking crash.

On the other hand, I don't believe I have ever hear of anyone not getting thier money after selling a stock. Now if that happens, the press may be interested.

Your story reminds me of what a broker told me years ago about the ways Wall Street robs people blind. Perhaps this is one aspect of it.

8:21 PM  
Blogger mekrum said...

In light of all the evidence of the extent of FTD (illegal naked shorting), can we expect in the near future to see a change in how the float shares are reported from the current number to just a statement "unknown" or would it be "unlimited"?

12:15 PM  
Blogger smokyjoe said...

Then again, the blue bloods east of the river took back a buch of dollar votes from the overly secure living west of mthe rockies...smoky

9:07 PM  

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