Re: 1/22/06 - [NCANS] theSanitycheck.com: Another "Expert" Chimes in With a Lot Of Hat, But No Cattle
Another "Expert" Chimes in With a Lot Of Hat, But No Cattle
Location: BlogsBob O'Brien's Sanity Check Blog
Posted by: bobo 1/22/2006 9:10 PM
Author Gary Weiss is trying to rise above the clutter and get his latest tome some interest and visibility. One of the tactics has been to pronounce, with absolutely nothing but the gravitas of his own hot air, that anyone in the anti-naked short selling camp is a de facto member of the "Baloney Brigade."
Mr. Weiss, aside from the ad hominem, is apparently blissfully unaware of many of the data points which would render his perspective moot, and is long on vitriol, while running a deficit on facts. One hopes that his important work is better researched and presented than his blog entry.
Now, aside from the obvious - that anyone can declare those with whom they disagree to be "nuts" or "kooks" or "full of it" - one wonders whether Mr. Weiss truly believes his pap, or whether this is a stunt to get some attention. It is difficult to take seriously statements like "short selling, "naked" or not, is good for investors. That's a proven fact that has been demonstrated time and time again." I am unaware that it has been demonstrated time and time again that a manipulative trading practice is good for investors - unless the investors he is referring to are those in hedge funds that naked short as SOP.
One test to establish if this is a cheap publicity stunt will be to see whether he is interested in genuine dialog, or is merely on a Jeff Mathews-style agenda to demonize, without being able to support his position in any sort of debate. Jeff is a censor-Meister, removing any posts that dare to take an opposing or questioning position, so it will be interesting to see if Gary shares that dislike for having his declarations questioned. To that end, and because I haven't seen my two comments on his blog "approved" by the author yet, I thought I would provide him with an uncensored podium from which to share his wisdoms. Here is his little vignette, along with my two as yet un-approved posts, from his blog:
[ blog excerpt available here: Message 22087975 ]
"Interesting. Baloney Brigade. Very catchy - I trust that you will indulge me, as, I suppose, one of the baloney brigade, and take a few moments of your time, bringing your considerable prowess to bear on disabusing me of some of my fanciful notions. Fanciful, because in order to deserve the moniker baloney brigade, I must be misguided, and you, presumably, are not - thus warranting your creating a pejorative label for those taking the position that naked short selling is bad.
Perhaps you can help me understand a few things, ending my confusion on the topic:
1) Naked short selling, in all but a few limited instances, is illegal. Correct?
2) Naked short selling has been illegal since the Crash of 1929 precipitated the creation of the SEC in 1934 - correct? There have been requirements for the prompt delivery and settlement of shares since that time, as it was evident from the bear raids of '29 and '32 that unregulated share counterfeiting (that is how they did it in those days, besides just bald-faced failing to deliver) created unlimited supply to counter fixed demand - a recipe for manipulative pps depression obvious to anyone that understands fixed demand meeting unlimited supply. Do you follow so far? If you create, out of thin air, "shares" (which only the issuer is allowed to do, BTW) in vast excess of what is issued and authorized, you can drive the price of any thinly-traded company down significantly.
3) Depressing the price of a company in order to benefit financially using an illegal trading strategy such as naked short selling is stock manipulation, pure and simple - that is why it is illegal. Seems simple so far.
4) Long-winded, sophomoric, circular arguments about what should be allowed aside, the fact remains that it is illegal to naked short sell, specifically because of these well understood concerns:
A. It artificially creates sales transactions, treated by the system as legitimate (and with a legitimate sale transaction's effect on the stock price) - and yet no product is delivered to the buyer. Simple fraud. That is what they call it when you advertise something for sale, take the money and create a sale transaction, and then don't deliver the product. Fraud. Agreed? If not, why not?
B. Most consider fraud to be bad, and counterfeiting to be equally bad. Both bad, for obvious reasons. Do you feel that fraud, or counterfeiting, are not bad? If only bad some of the time, why the selective ethical barometer?
C. A share is a parcel of rights, including the right to vote, and the right to legal redress from the company, as a shareholder. When a naked short sale is placed, no parcel of rights are exchanged - that is why folks understand that it violates Rule 17A, in which Congress mandated the prompt clearing and settlement of trades, including the transfer of registered ownership. Naked short selling violates 17A's mandate, unless you consider NOT settling or transferring registered ownership to be somehow equivalent with doing so. Most don't.
There are more reasons that naked short selling is considered to be bad, generally, other than the fraud, counterfeiting, stock manipulation, and violation of the SEC's and Congress' rules requiring sellers of stock to deliver what they sold concerns - we could go into those once you have helped me through my confusion on these.
Now, if you don't believe that naked short selling happens, or that it happens much, I would direct you to the FOIA requests at TheSanityCheck.com which show hundreds of millions, and on some days billions, of FTDs - sales transactions for which buyers paid hard cash for a product (shares), and for which they were defrauded, i.e. never received that for which they paid.
Those FOIAs are not subject to discussion or interpretation - they are fact, and any theory or sentiment you have on the topic should include them. I would also direct you to recent actions against Goldman Sachs for naked short selling, or against RYCO for the same, or against Elgindy for his little scheme, or against Rhino Advisors and the Badian brothers, or to the transcript of the recent NASAA meeting (where the top experts on the markets in the country agreed that it was a real problem, and that the lack of transparency in the system created a breeding ground for larceny) - I would encourage you to review the comments of Robert Shapiro (former Clinton senior economist), and Professor John Finnerty (of Fordham), and Professor Boni (whose work on behalf of the SEC established settlement failure by market makers as an endemic manipulative tool) in framing your opinion.
I would further direct you to the recent (Friday) suit brought against a hedge fund for having a material role in the BK of American Business Financial Services, because of naked short selling and stock manipulation - brought not by the management, but by the bankruptcy trustee.
There is a mountain of evidence proving that the practice does take place, and that it causes non-trivial damage to small or thinly traded companies, and that it is an essential element in stock manipulations exactly like those that were ubiquitous in the 1920's. That mountain needs to be addressed, and facile aphorisms are not an adequate substitute for explaining that mountain in any hypothesis you put forward.
So help me out here. Do you maintain that this doesn't happen, or do you maintain that defrauding buyers out of their cash and not delivering their shares isn't bad, or do you feel that because there are crooks running pump and dumps, that allowing another set of crooks to violate the law and defraud investors is justified (the two wrongs make a right canard)?
I am truly interested in your sentiment, as you are getting a bit of play on the message boards, and your work is being characterized in a way that sounds either patently silly, or wildly misguided, or just completely uninformed. I have a hard time believing that a responsible author would so badly butcher the facts, so I was hoping, that absent seeing a release copy of your work, you could clear all this up for me.
Thanks for taking the time to respond.
AKA Bob O'Brien
www.TheSanityCheck.com
-----
One other comment as I read your summary - I note that you are long on declarative statements, but short on addressing facts which show your position to be questionable - specifically, last week, there were two examples where journalists were compromised - paid by outside interests to write stories which advanced those interests' agendas. One was Abramoff and a Fellow at the CATO Institute, who is syndicated in hundreds of papers across the US, and the other was the Healthsouth CEO paying a local paper to influence sentiment in the local populace during his trial.
Now, are you saying that my statement you cited (without attribution, BTW, but who's counting) is incorrect, or impossible? If incorrect, how do you know what you clearly claim to know, and what definitive proof do you have to support your claim? If impossible, why? Are you saying that unlike every other profession on the planet, from the clergy to law enforcement to charity workers to bankers, that journalists are uniquely immune from a larcenous fraction existing? If not, what are you saying?
It seems to me reading your statement that you are long on rhetoric and acrimony, but rather short on substance. If I got that wrong, I apologize - maybe I missed the substance in your missive - to me it seemed like a lot of ranting and unsubstantiated opinion being tarted up as substance.
There is a lot of that in the camp that declares that there is no naked short selling problem, or that it is all in our heads, or that it isn't bad to defraud buyers.
I assume you are different from the other empty suits purveying that dross.
Thanks again for the opportunity to respond."
Copyright ©2006 Bob O'Brien
thesanitycheck.com |
