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Strategies & Market Trends : Mish's Global Economic Trend Analysis
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To: patron_anejo_por_favor who wrote (37158)9/14/2005 6:36:49 PM
From: mishedlo  Read Replies (1) of 116555
 
From Heinz
i find it amazing that they don't try to find out if the securities are available BEFORE they short them. i as an individual investor have often enough had my broker refuse me a short sale because he was unbale to locate any securities for borrowing. there never was any question that that's a sine qua non.
how can holders of the t-note be 'forced' (this is what 'persuasion' by the Fed amounts to) to lend it out? if they own it fair and square, it's up to them what they do with it.
lastly, the fact that open interest in the t-note (and for that matter, in many commodity markets) future apparently far exceeds the physical supply of the underlying that can be used for delivery can probably only be fixed by introducing cash settlement.
otoh, this opens up the possibility of other avenues of manipulation, as Butler alleges in the silver market. his argument may be weak, but anyway, it is that the dealer short selling of silver futures contracts by far exceeds the physical supply that they could possibly deliver if called upon. thus he argues, their selling of 'paper silver' amounts to a price manipulation scheme. i don't agree 100% for a variety of reasons (inter alia, there is probably some netting out of otc contracts that refer to silver still in the ground), but i can see how it would be in theory possible to manipulate the market in this manner.
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