Hmm.. were it not for the use of "death spiral" convertibles and other abusive financing practices, it would seem there would be no need for "liquidity" regulations.. There's a difference between "venture capital" and "vulture capital". I don't see much venture capitalism now, but vulture capitalism seems alive and well.
The more I read about this subject of Naked Short Selling and use of highly dilutive floorless convertibles, I become increasingly concerned about the overall integrity of the capital markets.
What the shorts should understand is that for them to really make money, the "game of hopes" has to be preserved. You can't just bash the entire financial capital raising structure without eroding overall confidence on the part of investors (who don't possess all of those fancy ways of hedging). Undermine that confidence enough and the game ends because only the shorts will be left. We'll wind up like Japan, where the people became so disgusted with the financial system that they effectively put their Trillions of dollars (yen equivalent) in electronic "mattresses" drawing .25% interest.
I see this especially in the micro-cap markets, which are the nurseries of entrepreneurialship. For most of us, we're not permitted to short stocks under $4/share, yet the VCs and other hedgies (and Broker/dealers) apparently can. The use of NSS places a restrictive cap upon the ability of these companies to raise capital via secondaries, and then when they do manage to raise capital, they are pummeled remorsely by NSS who recognize that the covertible holders (who are often themselves the NSS'rs) will dilute the stock with millions of shares.
No.. the real threat to the intregrity of the markets is the undermining of the rules of supply and demand. It's not the place of the NSS to assert they are providing a "safeguard" against speculation by limiting speculative bubbles and using NSS to supply stock shares that do not even exist. If people wish to purchase shares according to their level of demand, then supply should be met when their demand is satisfied by either their selling price target, or the company's ability to offer a secondary to raise capital to fulfill their business plan.
Listen to Cramer (aargh).. He's someone the retail investors listen to. And when he rants against NSS, they aren't stupid. They can see the capital markets are rigged and finally understand the strings that are being pulled. That will make them increasingly hesitant to invest capital into the equities markets. Just as no one will, with any sanity, go to Vegas to knowingly play a "rigged" slot machine that guarantees the house wins most of the time, neither will they invest capital into the equity markets merely to give NSS the opportunity to steal from them.
Thus, NSS undermines the public perception of the fairness of the markets with regard to supply and demand. If NSS can sell a product that doesn't exist, they are counterfeiting and it undermines the supply side of the equation, preventing proper price discovery.
It's a damn shame that it required NSS'r targeting the very heart of our financial system for the SEC to finally start recognizing the monster they've been feeding all of these years. The only way in which to counter it is to demand accountability for all corporate shares being located during a stock transaction and making enforcing (and strengthening) the EXISTING RULES NSS (even for mmkrs).
Hawk |
