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Garbage In, Garbage Out - The Latest Crying Towel From Wall Street
Location: Blogs Bob O'Brien's Sanity Check Blog
Posted by: bobo 1/15/2007 9:43 PM
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Sign the Market Reform Petition Now!: View it here. Over 3000 folks already have. Make your voice heard.

To view the SIA NYSE member firm spreadsheet showing $63 billion in delivery and receipt failures as of Q2, 2006, click here.

Visit the new "SEC/Gary Aguirre Cover-Up" section of this site for a compilation of Mr. Aguirre's efforts to expose the SEC's alleged obstruction of justice and whitewashing of insider trading by some of the biggest names on Wall Street.

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I recall as though it was yesterday the breathless articles on Reg SHO, and how short squeezes would be rampant once the rule was implemented.

Turns out that was completely false. A fabrication, or hopelessly naive on the part of the writers who spun the yarn.

And yet every time anything comes out of the SEC that even hints at reining in Wall Street, new puff pieces are issued forth proclaiming dire calamities ahead.

Witness the latest in the string, by no means remarkable other than for the predictability of its assertions (sort of like anything ever written by Professor Owen Lamont, who is now working for a hedge fund, and whose body of work could be summarized by the words, "Shorts are good!!!") and the workmanlike quality of its rationalizations, from Vodiagroup.

This is the same hackneyed argument as the one from two years ago, and ignores that no such short squeeze epidemic happened then, either. Essentially, this fanciful bit of hogwash can be synthesized down to, "If you require sellers to actually deliver what they got paid for, all hell will break loose!"

Or perhaps more accurately, "If you stop enabling billionaire hedge fund managers and their all-powerful prime brokers to refuse to deliver what they sold and were paid for, then all hell will break loose."

The argument is classic Chewbacca defense.

First, let's start with the fact that it frames those taking investor money, and refusing to deliver what they were paid for, as a potential victim class waiting to happen.

Pure poppycock. Imagine. The logic is so dim as to rival flat earth arguments. The miscreant predators, whose sole reason for refusing to deliver is to create endless selling pressure, thereby manipulating the victim company's stock into the toilet, could actually face the consequences of having market forces play the other side of that bet, fair and square. Boo hoo hoo. Poor potential victim billionaire hedge funds, and their poor prime broker enablers, who might not make as many billions of bonus dollars if they had to deliver what they sold, and their manipulations were ended.

They are victims.

Really.

That is the logic. Sort of like the burglar shot by the homeowner defending his home in the dead of night is a victim, too.

To call it laughable doesn't do it justice.

Let me put it another way - Wall Street works long and hard to make it seem that you lost your money investing, or speculating.

The reason is that you would be furious and vengeful if you knew that your money was actually stolen by criminals, just as surely as if they had broken into your safe in the wee hours and absconded with your nest egg.

They try to color it as something else, because everybody knows that the guy sneaking out the window with a TV is a thief, nothing more, and there isn't much sympathy for him.

What kills me is that when thieves steal your millions using market manipulation and fraud and racketeering-style collusion, Wall Street dresses it up as something different.

Guess what? It isn't. It is taking your money, and keeping it, defrauding you by falsely representing that rules are in place and being followed - preventing massive market manipulation and outright theft of investor savings, rather than aiding and abetting it.

The rules are a joke. A pathetic joke. Anyone watching the huge reverse put conversions in NFI over the last few weeks, as the company lost 30% of its value on no news, and yet hundreds of thousands or millions of shares per day were printed out of thin air and sold by options market makers colluding with the miscreants, realizes that the regulators would have to be blind, deaf and dumb not to realize what is going on. Everyone else does. Everyone. There are even now real time posts on the Investorvillage message boards as the conversions occur, tracking them to within minutes.

I wonder if a jury of 12 everyday folks will be confused as to why massive derivatives purchases were made, day after day, whose sole effect was to generate millions of naked short shares sold into the market by the options MM, predictably depressing the price of genuine shares authorized by the company. I wonder if they will ask, "Who did all the buying of these puts, and what mechanism made the MM think it was wise to sell millions and millions of shares, without thinking, hmmm, is this a manipulative device?" Or ask, "Who places orders, day in and day out, and then cancels them after hours, when the damage is done?" I could go on for hours as to the myriad number of scams I've seen of late. But I won't bore you with it.

You think anyone will have a hard time understanding fraud when they see it?

That is the real question in the NFI suit against the prime brokers, who allegedly have processed millions of shares they allowed to remain undelivered for months, or years, colluding to achieve the objectives of their wealthy and powerful hedge fund clients, seeks to answer.

Wall Street hates these types of proceedings. What they want is the sort of thing we just saw with Putnam, where the head of the fund, back when market timing with hedge funds robbed investors of billions, recently settled with the SEC for....$75K. That's right, folks, not a misprint. Be the head of a fund that accommodates the robbery of its investors of staggering amounts of money...retire with hundreds of millions of dollars, and get fined $75K.

That sends a pretty clear message. The SEC is a joke. There is no rule of law, nor penalty for connected uber rich Wall Street royalty. Just back slapping and big money payoffs.

In fact, if one wanted to be really cynical, one could say, Spitzer got elected based on bringing these sorts of cases to light - a man of the people and defender of freedom, as well as buddies with and bigtime campaign fund recipient of the hedge funds believed to be the worst offenders - and the press got to say, "See, progress is being made, the bad guys have been stopped," and the perps got to appear to have taken lumps, when in reality they got to laugh their way to the bank, flicking a few shekels at the regulators like so much lint from their Armani sleeves.

That's how it works. No lie.

Meanwhile, Gary Aguirre is fired from the SEC for daring to believe that justice and the law should be evenly applied, his bosses appear before the Senate Judiciary stammering and contradicting themselves and having implausible sudden memory lapses, stocks like NFI and TASR and OSTK and such are routinely manipulated in the most obvious and blatant manner possible using media slams and the aforementioned obvious abusive reverse conversions, and the lawmakers and regulators do not a single thing.

Again, they are stealing your money just as surely as a larcenous bank employee would embezzling your savings, but by pretending that this is different, they hope to baffle you with BS and hope everyone will allow it to continue. Sometimes, the more brazen will argue that you should have known better, that everyone knows that Wall Street is shorthand for lying thieves stealing your stuff. It's your fault for believing the laws would protect you. Shame on you for being so gullible and naive.

The pharmaceutical equivalent would be selling placebos rather than chemo drugs to cancer patients, and then arguing that the type of cancer they were selling products for was largely terminal anyway, so no harm done, and in point of fact, they are the good guys as they saved their victims from all the suffering the side effects to the genuine drugs could cause. There are no words to describe how evil these people are. Truly none.

Short squeezes from hedge funds playing the other side of the trade? Might as well toss that one in with the Tooth Fairy and Santa.

What hedge fund in its right mind would take on the most powerful brokers on Wall Street, and hedge funds that, with leverage, control hundreds of billions of selling might? Please. What pap.

And yet the sausage machine keeps on churning it out, hoping you won't ask what's inside the bun.

Any questions?

Copyright ©2007 Bob O'Brien

Bob O'Brien's Sanity Check - Garbage In, Garbage Out - The Latest Crying Towel From Wall Street
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All ambitions are lawful except those which climb upward on the miseries or credulities of mankind.
Joseph Conrad,

Use your own mind on what to buy and sell!!