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Financial news I consider important, with my opinion, which is worth as much as you paid for it.
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Thursday, May 24, 2012

Goldman Sachs accused of shorting more shares than available

Rolling stones reports that Goldman Sachs made available 107% of the shares of Overstock.com available to short.

A couple of ground rules should be explained.  Rule 1 is stocks CANNOT be shorted unless you "borrow" someone's existing shares to short with.  so 107% is impossible unless breaking the law, intentional or not.

Second, shares that are held by others CANNOT be used to short unless the stock is made available TO short.  Typically investment firms, mutual funds, etc all lend their shares to be short.  So I find it hard to believe that legally 100% of the shares where available to short, since SOME shares would not be eligible for shorting.

Since the start of the financial ground zero events, I do not know of any prosecutions due to the actions by any major investment firm stakeholders.  I am not counting side people like Bernie Madoff, they are small time outright crooks that are easy to take on. (and should be)

My FAVORITE quote is:
"Fuck the compliance area – procedures, schmecedures," chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales. 

We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for “our more powerful enemies,” i.e. would work with Overstock on the company’s lawsuit.
"He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding," the lobbyist writes, "while resistance results in isolation."

Since this is a clear case of someone, somewhere, intentional or accidentally breaking the law in trading stocks, I will wait for the prosecution.  Also I will wait for pigs to fly, and for me to live to 300 years old.  Since this happened back in 2005-2006, I am sure a prosecution is going to happen any day now.

This entry goes into Financial Ground Zero series.  This event is small potatoes and irrelevant.  What isn't irrelevant is lack of law enforcement (corruption) which will ultimately take down the US dollar if the law continues to be ignored.  If this isn't a clear cut case of Moral Hazard is waaaay past a theory and fact, i don't know what it will take to prove that lack of prosecutions directly influences risk takers to cross the line to take on more risk.

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