Written on Sunday July 20 The comprehensive bankruptcy of the United States, at every level, in all corners, atop each hill and mole-hill, and down not a few rat-holes, is preceding like some kind of hideous multi-media, inter-dimensional cosmic grand opera as produced and directed by the Devil. Every week, some bizarre new subplot is introduced by the stage managers, each turn and twist geared to produce maximum pain and carnage in the US economy, as if to foreclose any possibility of redemption on the way down. Well, the absence of hope is, after all, the essential nature of Hell (setting aside, for the moment, J.P. Sartre's quaint notion that Hell is other people).
Written on Sunday July 20
The comprehensive bankruptcy of the United States, at every level, in all corners, atop each hill and mole-hill, and down not a few rat-holes, is preceding like some kind of hideous multi-media, inter-dimensional cosmic grand opera as produced and directed by the Devil. Every week, some bizarre new subplot is introduced by the stage managers, each turn and twist geared to produce maximum pain and carnage in the US economy, as if to foreclose any possibility of redemption on the way down. Well, the absence of hope is, after all, the essential nature of Hell (setting aside, for the moment, J.P. Sartre's quaint notion that Hell is other people).
what made him exclude himself?
Clusterfuck Nation by Jim Kunstler
The howler of the week was the Securities and Exchange Commission's edict that Wall Street sportsters would be prohibited from trafficking in so-called "naked short" sales against a cherry-picked bunch of 19 banks and financial companies for the next two weeks. A cute trick, naked shorting is done by pretending to borrow a bunch of stocks, pretending to sell them high just before the share-price falls, pretending to buy them back at a lower price when the share price has fallen, and then pretending to return exactly the same number of lower-priced shares to the lender, pocketing the difference. Real shorting is cute enough, and involves "clearing" the sales -- i.e. proving that real stocks were really lent and really returned. Shorting is helped along by generating rumors that a given company is in trouble, thus nudging share prices down. This works really well when a company already is known to be struggling, as many now are. In fact, it usually works best when a struggle turns into a feeding-frenzy -- as when a bleeding mullet attracts the swarming sharks. When this scam is run using odd-lots of millions and tens-of-millions of shares sharked up at many dollars each, the profits to be made in this sport is obviously huge. With naked shorting, however, the stocks being shorted are basically non-existent, imaginary, made-up, fictional, registered only as pixels in a program. It's a racket, pure and simple, run by both the supposed borrower of the stocks and the supposed lender and, more to the point, was wholly and absolutely against the law before the SEC declared a selective holiday from it last week. So, what the SEC action really demonstrates is the utter lawlessness reigning on Wall Street, and the SEC's singular unfitness as an enforcer of the laws, not to mention the criminal irresponsibility of the clearing authorities who only pretend to go through the motions of certifying the sales. What's more, the companies cherry-picked for immunity against shorting were some of the very companies believed to be most active in profiting off naked short sales against other companies. Thus, the credibility of all the authorities in American finance, including the Secretary of the Treasury, Mr. Paulson, the head of the Federal Reserve, Mr. Bernanke, the director of the SEC, Mr. Cox, takes on the aroma of week-old dead carp, while the affairs of American banking and business as a general proposition look to the rest of the world like a simple looting operation, reflecting poorly on the paper certificates that we use as "money" in the land of the free.
better stop now... there's more there... ~"When an inner situation is not made conscious, it appears outside as fate." Karl Jung~
Short selling can be confusing if you try to approach the issue from the perspective of how it works, rather than the much easier to understand concept of what it does. Most people have heard of the multi-millennium old trading maxim advising one to "buy low and sell high". All short selling does is reverse the order of this operation, you sell high to begin the trade, and buy low to close it... [In] the case of big orders from aggressive traders like banks and hedge funds, in less heavily traded securities, short selling can, and frequently does, move prices significantly down... [The] complicated part of short selling, of selling something that you don't own, is, of course, that you are selling something you don't own. [The] way that the finance profession has found a way off this endless Mobius Strip of illogic is to have the short seller go through a sort of public decency boogie that involves having him initiate a fig leaf process that is called "borrowing" from an actual owner and for a small fee the shares that he wants to sell short. [In] and of itself, selling short without the cover of borrowing the stock from a registered owner, otherwise known as naked shorting, was, at least until last week, not unlawful. To meet the legal definition of unlawful market manipulation you had to be guilty of naked shorting and have had a seriously material negative impact on the stock price. Taken together, the two requirements had provided a very comfortable blanket of legal security for the short sellers. [After] speculators essentially ran Bear Stearns out of town in March, [no one] wanted to go through that again, not with the presumed next target in the speculator's sniper scopes, Lehman Brothers, certainly not with the much larger Fannie and Freddie. After Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke weighed in [to] convince the markets that the two were still sound, SEC chairman Cox made his contribution; much in the spirit of The Godfather's Don Corleone, he made the shorts an offer they could not refuse. [Following] his announcement on July 15, it is now illegal for a limited but extendable period to naked short sell Fannie and Freddie, along with another 17 of the nation's largest investment and commercial banks such as JP Morgan Chase, Bank of America, Goldman Sachs, even such foreign houses such as Deutsche Bank and Allianz of Germany, Daiwa of Japan, and UBS and Credit Suisse of Switzerland. [For] the iconoclastic entrepreneurial finance mavericks of Wall Street, government intervention in their business operations was always something to be loathed and decried... "[How] dare you make us obey the same type of laws that other businesses regularly have to follow... [That] will make us inefficient, and we'll never be able to compete!" But it seems to be a different story when the government regulations involved are not a burden that the banks must bear, but a burden the rest of the society must carry for the benefit of the banks. [Executives] from banks and financial institutions not among the chosen 19 complained that, with a legal fortress now erected around the share prices of the big fish, the attention of the ravenous shorts would invariably turn to the smaller guppies in the pond. These too were desirous of that now-blessed warm security blanket of protection of their pay packages from the shorts. Also, in the only real type of dispute that the US government really cares about these days, that of old money versus new money, executives at market-making and hedge-fund firms (these would be new money) howled that, since naked short selling was such a central part of their trading operations, they should be exempted from the new regulations. Like a corrupt medieval pope selling indulgences so sinners could enter Heaven, Cox quickly agreed. [Proving] that, indeed, the government can make as much wealth as the private sector can destroy, the new SEC rules have ignited a massive rally in the US financial sector. From their lows last Tuesday (July 15) before the regulations were announced to Monday's close, the BIX index is up 38%, but among the blessed 19, the results are even more dramatic. The share price of Bank of America is up 55% over that period; Fannie and Freddie have really hit the jackpot, up 107 and 124%, respectively.
[The] complicated part of short selling, of selling something that you don't own, is, of course, that you are selling something you don't own. [The] way that the finance profession has found a way off this endless Mobius Strip of illogic is to have the short seller go through a sort of public decency boogie that involves having him initiate a fig leaf process that is called "borrowing" from an actual owner and for a small fee the shares that he wants to sell short.
[In] and of itself, selling short without the cover of borrowing the stock from a registered owner, otherwise known as naked shorting, was, at least until last week, not unlawful. To meet the legal definition of unlawful market manipulation you had to be guilty of naked shorting and have had a seriously material negative impact on the stock price. Taken together, the two requirements had provided a very comfortable blanket of legal security for the short sellers.
[After] speculators essentially ran Bear Stearns out of town in March, [no one] wanted to go through that again, not with the presumed next target in the speculator's sniper scopes, Lehman Brothers, certainly not with the much larger Fannie and Freddie. After Treasury Secretary Henry Paulson and Federal Reserve chairman Ben Bernanke weighed in [to] convince the markets that the two were still sound, SEC chairman Cox made his contribution; much in the spirit of The Godfather's Don Corleone, he made the shorts an offer they could not refuse. [Following] his announcement on July 15, it is now illegal for a limited but extendable period to naked short sell Fannie and Freddie, along with another 17 of the nation's largest investment and commercial banks such as JP Morgan Chase, Bank of America, Goldman Sachs, even such foreign houses such as Deutsche Bank and Allianz of Germany, Daiwa of Japan, and UBS and Credit Suisse of Switzerland.
[For] the iconoclastic entrepreneurial finance mavericks of Wall Street, government intervention in their business operations was always something to be loathed and decried... "[How] dare you make us obey the same type of laws that other businesses regularly have to follow... [That] will make us inefficient, and we'll never be able to compete!" But it seems to be a different story when the government regulations involved are not a burden that the banks must bear, but a burden the rest of the society must carry for the benefit of the banks. [Executives] from banks and financial institutions not among the chosen 19 complained that, with a legal fortress now erected around the share prices of the big fish, the attention of the ravenous shorts would invariably turn to the smaller guppies in the pond. These too were desirous of that now-blessed warm security blanket of protection of their pay packages from the shorts.
Also, in the only real type of dispute that the US government really cares about these days, that of old money versus new money, executives at market-making and hedge-fund firms (these would be new money) howled that, since naked short selling was such a central part of their trading operations, they should be exempted from the new regulations. Like a corrupt medieval pope selling indulgences so sinners could enter Heaven, Cox quickly agreed.
[Proving] that, indeed, the government can make as much wealth as the private sector can destroy, the new SEC rules have ignited a massive rally in the US financial sector. From their lows last Tuesday (July 15) before the regulations were announced to Monday's close, the BIX index is up 38%, but among the blessed 19, the results are even more dramatic. The share price of Bank of America is up 55% over that period; Fannie and Freddie have really hit the jackpot, up 107 and 124%, respectively.
Kunstler:
It's a racket, pure and simple, run by both the supposed borrower of the stocks and the supposed lender and, more to the point, was wholly and absolutely against the law before the SEC declared a selective holiday from it last week.
[In] and of itself, selling short without the cover of borrowing the stock from a registered owner, otherwise known as naked shorting, was, at least until last week, not unlawful.
