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Pastimes : Silicon Investor - User Site Discussion - Generally Unmodera
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From: N. Dixon1/5/2014 11:10:44 PM
   of 1604
 
Just to clarify, the worst part of naked short selling is when the shares are not available to borrow. Think of a stock certificate as a 100 bill. Yours are kept at your financial institution but you can order out certificates and put them in your safety deposit box, but then if you sold them you would have to have sent it back to your brokerage.

Now when I was little I asked my dad why don't they just print enough money for everyone. Well you have to understand the concept of fiat. Which is like creating something out of nothing. My friend from Belgium actually worked on developing the value of the Euro, which as you know made Europe able to do commerce more easily but only works as well as the lowest common denominator. [Google Greece Debt]

So what Madoff did was sell stock that never existed. Think of it as counterfeit money. If a company has "x" number of shares they have a market capitalization of shares times share price. Stock prices move on supply/demand. When there is more selling of shares, you have deflation or loss of value and conversely when you have short supply you have :inflation" as it were. [not really the right term...but whatever I teach special ed, people can only understand an new concept if you tie it to something they already know]

So what Madoff said to the US Government was "Guys trust me, if you make this new law I won 't print any counterfeit money and ruin the economy" But he lied.

End of story. Madoff exemption is still law. Means shares that are not accounted for (no specific stock certificate number) are being sold. And it's your stock they are selling. A "borrow" means the firm in which you hold your account, can "lend" your shares to a short seller, but it has to eventually balance out. The short seller has to buy back your share and give it back to you.

That is exactly what the people who took down my uncle's firm did. They "overmargined" and they lied. The firm could only afford to make good on a portion of the value of the shares. That's what happened with our banks and instead of arresting these people like they did in Iceland, we gave them our tax dollars to pay back what they owed.

Now we have the Volcker act which is supposed to curb some of this but it still leaves a loophole that allows naked shorting.

That's why we have high unemployment. When the Silicon Valley, first became the Silicon Valley we had venture capital to start companies and then those companies hired people, created jobs and industries.

Now that has shrunk to where we are headed for another crisis. The people who just had their unemployment benefits cut off are people in middle management who were laid off after 20-30 years....they were the extra fat that companies have had to let go of.

So it's the bigger issue here. Not my stock. We're not vulnerable because we have no debt. Companies with debt need to get more capital by issuing stock, short sellers call it a fraud and then short it down to where they can't continue as a going enterprise by selling more shares. Actual fraud should be reported to the SEC. It is not our job to short a company into oblivion. That's not what short selling was created for. It was a way for large institutions to minimize risk. That's why the debt a company has is important. You make money when a company is profitable and you get paid a dividend. Do any of you even remember your parents owning stock, much less trading it like it was a game.

Trading and shorting boiler rooms are just illegal gambling enterprises and it's our fault for not holding the markets accountable. It really is the fox watching the chicken coop.

Remember Bernie Madoff was Chairman of the Board of Directors of NASDAQ. Congress trusted him. Who do you think oversees the SEC?

ND
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