The 1% (or so) Solution...And The Radio Interview That Spells it All Out
Bud is an old hand at this, and has forgotten more than most know about the system and the problem. This is an incredibly articulate, blow-by-blow description of how bad the problem is, how it has impacted the economy and our futures as citizens. I am enraged as I listen to this - the information is knowable, guys like Bud know it, and yet the mass of the media and Wall Street pretend that there is no problem - and a complicit media follows along.
Please listen to this - and distribute it to everyone that believes this is no big deal. It is damning.
Additionally, Bud will be back on the radio on Monday for a continuation of his information download - tune in.
Now to the Sanity Check portion of today's program.
Sounds trivial. Nothing to speak of, really.
When the SEC's Brigagliano spoke about naked short selling at the NASAA conference on November 30, he tossed out the number 1% like billionaires toss out buck cab fare tips.
One percent of the daily stock transactions on the exchanges fail, every day.
Let's contrast that against the number the DTCC came out with in their interview.
$6 billion a day of fails - trades that don't clear - occur every day. Per Thompson of the DTCC.
Now, the DTCC says that is a rolling total including aged fails.
Fine. So how do we reconcile that with the SEC's statement that 99% of trades don't fail, leaving 1% which do? If that is accurate, then $4 billion per day (potentially - it could be smaller, as many of the fails are likely in low price stocks, thus in number of trades they could comprise the 1%, but not in dollars - but we don't really know, do we?) are the new fails, leaving $2 billion per day as old fails. Fine.
So what happens tomorrow, when another $4 billion (or $1 billion, or $600 million - you get to pick your number as the actual number is a secret) fail? And the day after that? How does it stay at $6 billion per day, inclusive of aged fails, if tons of new fails are added every day...does that mean that most clear within one day of failing? That seems odd, given that Professor Boni's paper indicated that the average FTD was 56 days.
Something doesn't add up. Either the DTCC is being less than straightforward with us, or the SEC is, but the numbers do not add up, any way I can make them.
Then again, I never was good at math. Still, ya gotta love the numbers.
Here's another fun number. I love fun numbers. You should too. Numbers are revealing.
How are those $6 billion dollars of failed trades distributed?
Are they showing up in GE and Microsoft and Intel and Dell? Nope. They are not. Why is a topic of a future Sanity Check, the short version being that those companies are too large to successfully manipulate.
Suffice it to say that they aren't.
Those fails are hitting 30, 40, maybe 100 companies. Maybe 200. But likely the largest distribution is in a few companies.
So suddenly the idea of 1% per day of fails takes on a bit more magnitude when contextualized. Let's say that fails represent more like 40% or 50% or 75% of the trades in the victimized companies - a bell curve wherein the peak is a sharp spike.
It doesn't sound so trivial now, does it? If 75% of the stock sold in OSTK on a given half million share day fail, that has a PROFOUND impact on the company's valuation.
Mr. Brigagliano seemed to love the 1% number, but didn't even like the idea of addressing the questions from the audience that would have shown the lie to the notion that this is a small affair. I don't blame him. When bureaucrats start trying to downplay the size of a problem by speaking in percentages rather than in hard dollars, hold on to your wallet. I'm sure that the percentage of soldiers killed in Iraq is minuscule compared to the population of the US, or even the total size of the military apparatus, but to every mother that loses a son the impact is real, and significant. But I digress - the point is that the FTD's are a huge annual number, per Brigagliano (1% per day of trades fail every day - hard to misinterpret that), and that those fails are distributed in a small number of stocks, representing a huge problem for those 50 or 100 companies. So one might well ask why it is acceptable for those companies to have a substantial amount of their trading fail, and buyers defrauded out of their cash, receiving nothing for their payment? Apparently the SEC will "study" that and get back to us. Maybe.
As to the NASAA conference and Brigagliano's performance, one has to feel a little sorry for the man, even though his pomposity and arrogance came through loud and clear. I mean, how would you like to have to explain to the American public that 10, 20, 50% of the stock sold in any company on the SHO list was fails, and that the best you could do is "study" this curious affair?
That's our SEC hard at work.
My message here is simple - the high concentration of the FTD's per day in just a handful of companies - the SEC is deliberately trying to make it seem trivial with some statistical sleight of hand, while simultaneously defending keeping the numbers secret.
They clearly think we, the American public, are dimmer than burned out refrigerator bulbs.
And the SEC is just too GD busy to actually do anything. Huh. They will study the impact of naked short sales and Reg SHO into the mummy stage, and ignore that every expert in the country says that keeping the system opaque is a huge problem for any faith in fair markets - hey, maybe another 2 or 3 years of studying it and they will be ready for an in-depth focus group, or maybe a tiger-team work group!
Meanwhile, the public gets screwed to the tune of approaching a trillion dollars of fraudulent trades per year - conservatively.
Hell, that's real money even by Beltway and Wall Street standards.
But nobody will do anything.
Sick yet? I could tell you the story of the SEC office that is paying double fair market rates for their first class office space, and yet hasn't filed a single enforcement action for this year. But I won't.
My favorite book from a few years ago chronicled stories of $400 Pentagon hammers and such. Believe me when I tell you that the SEC makes the Pentagon look like a coupon-clipping Granny.