12/4 - Patrick has a new blog which everyone interested in how this got as bad as it has, should check out. It's pretty comprehensive, and has a certain style to the prose I'm a fan of. Here's a sampling:
"The New York Times summarized all of this in a story with the tepid headline, “S. E. C. Erred on Pequot.” Indeed, if derailing investigations into wealthy elites with “juice” while negotiating high-flying jobs with their white shoe law firms as an Inspector General conducts a half-hearted investigation before whitewashing the cover-up-firing of an investigator too recalcitrant to go along for the ride all count as “erring,” then yes, The New York Times is correct, the SEC “erred” here."
Great stuff.
For everyone who has been wondering why certain topics on Wikipedia that are sensitive to powerful special interests (like Wall Street, and hedge funds) enjoy a certain Lenin-like immunity from the truth, and most facts, you would be well advised to read the following breaking article. It describes how Wiki is basically as crooked as a snake trail, and is completely compromised from within. Gee. As if this was news to the thousands who have read the Naked Short Selling entry, and shaken their heads in disgust at the bias and selective filtering of facts.
The reason this article is so important is because it reveals how widely disseminated information is being tampered with and censored, by self-interested, self-serving editors, some of which have been placed emailing and editing from the DTCC's computers. Isn't that fun? Recall 'lil GW caught red-handed editing from the DTCC, and then consider that anitisocialmedia.net has placed him as the primary editor of the Naked Short Selling section. Is that bad, to have a sock puppet working from the DTCC controlling the online authority for many's spin on Wall Street critical topics?
If you find genuine journalism of interest, please DIGG the article so it gets exposure. While I am pretty cynical, I have to believe that a breaking story that exposes Wiki as a bent, biased, controlled entity is important to many, who blithely buy into the notion that you can believe anything you read there. Nope. What you can believe is that if the POV isn't what someone influential at Wiki wants you to believe is the truth, it will be expunged faster than you can say failed Businessweeek hack.
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Here's the current lay of the land.
SIFMA has $192 billion of fails to deliver and receive on their latest spreadsheet. How much are bonds, and how much equities, nobody knows. And they don't clarify. So it's anyone's guess. That's just for NYSE member firms, and it doesn't include any ex-clearing trades (which aren't reported or regulated anywhere, and which are likely 10 or greater times the reported fails), any desked trades (where your broker takes your money, and merely applies an IOU to your account instead of buying stock for you), any internationally netted trades ($100 billion shares owed by X to Y, is netted against the $100 billion shares owed by Y to X, to arrive at a zero number for reporting, which they don't do, anyway), or any of the other fun ways that Wall Street takes your money and gives you zip in return, but their handshake and a smile.
But you can bet that it is a big number in the real world. A very, very big number. As in, the liquidity that fuels the market is being siphoned off every year by the prime brokers, who have figured out that for every 10 shares bought, they can only buy, say, 6, and they can leave IOUs for the rest, pocketing the proceeds with zero cost of goods sold - they never bought anything for you.
Nobody knows how many shares trading every day are actually just IOUs, for which no product has been bought. But history teaches us that when it comes to greed and loopholes, moderation isn't going to be the order of the day.
There is nothing to stop the collusion of this cartel of brokers. Nothing. The regulator is captured (as is succinctly explained by Byrne in his http://www.deepcapturethemovie.com piece). The brokers' clearing entity (the DTCC - wholly owned by them) has confabulated the process of settlement to the point where there is no linkage between you paying your broker, and him buying anything. That entity has also done the neat trick of eliminating any verification mechanism that would allow anyone to prove whether or not they owned a genuine share versus an IOU - they have eliminated paper shares, deciding that they are old fashioned, and costly. They want to save you, the investor, money, by eliminating the last shred of proof you might use to tell whether your broker was acting as your trusted fiduciary, or was running a ponzi scheme or con game.
As long as all the cartel members pretend that each others' IOUs/chits are good as gold, they can all continue to cheat investors, and pocket whatever percentage of every dollar allocated by investors for buying stock, as they like. 1%. 5%. 10%. 25%. Nobody knows how big. Nobody. And the proof mechanism has been eliminated. How convenient.
That's why the OSTK lawsuit against the prime brokers is so interesting. Discovery in that will show, I believe, that upwards of 90% of all trading in the company's equities is bogus, and that all that money paid into the system to buy OSTK shares actually went into the banks' pockets, exchanged for worthless IOUs. If I am correct, the question isn't haw badly damaged OSTK was/is by the process, the question is, why would anyone believe it is limited just to OSTK and a few other victim companies like them?
Why, precisely, would the cartel of brokers not do the same thing on all equities, simply betting that there will NEVER be a run on the stock bank, where all buyers demand their shares at the same time? Of course, if you can get the DTCC, which you own, to make it impossible to trade or deal in paper shares, then you can guarantee that never happens, and you get to keep all the money you stole.
My belief at this point is that the entire market is precariously compromised, and that if all facts were known, we would understand that the veneer of civility applied to Wall Street is nothing more than the gloss applied to a monumental con. Think of Wall Street as insolvent S&Ls, who were literally stealing investor deposits by the billions, and you will understand what is going on, at least conceptually. Wall Street is taking your money, and there is no way of knowing what you get in return. Occasionally, a crack appears, as with OSTK, and it becomes apparent that NOBODY gets what they paid for. In those cases, the system rushes to cover it all up, and demonize whoever dares to point out the structural problem.
So that is the net net. Nobody knows how big this has gotten over the last decade, but we do know that the DTCC rushed to eliminate paper shares, and that now you have absolutely no way of knowing if you own anything at all but your broker's love. I'm here to tell you that you likely don't - the question is, is that 3% of your portfolio, or 55%? Again. There is no way to know.
Which is why it is a con. Confidence game. The essence of a con is that verification of the claims made in the con is impossible - the inefficiency of information availability is the con artist's friend. This con is straightforward: "Give me your money, and I will exchange it for this really valuable item (X) which I will then keep in a locked vault for you." Of course, nobody can go into the vault, as it wouldn't then be secure. So you have to take your broker's word that X is in the vault, with your name on it. If the broker has figured out that at any given time, he only needs to have 10 X's on hand to satisfy whoever is going to come in on any given week, demanding X, then he can take 100 X's money, and only buy 10, and just use the remaining money for whatever he wants (like massive bonuses), leaving an IOU in its place. It is a farce. The IOU is only as good as the broker's promise, which is predicated on the idea that nobody will really ever question that promise, or demand all the X's at once. Classic con. And the enemy of that con is a verification mechanism, which the industry and regulator has worked long and hard to eliminate. Gee. Wonder why.
Any questions?