After numerous posts on this blog discussing speculation of assorted forced buy ins, it seems that this phenomenon is quite factual and quite pervasive among the asset management community. As Zero Hedge has noted previously, forced buy-ins are a critical issue as it leaves shorts at the mercy of their securities lenders and repo desks (most of which are TARP recipients and thus beneficiaries of higher stock prices) which generically have the option of recalling lent out shares at a moment's notice, and thus creating artificial purchasing pressure: i.e. a forced short squeeze. According to Securities Industry News, in a recent survey by Callan Associates, over half of the respondents said they are undergoing a "controlled unwind" with their securities lending desks (aka State Street, BoNY, and Northern Trust).
From Securities Industry News

    Firms participating in securities lending programs are trying to reduce their risks and push for greater disclosure of what happens to cash given as collateral, according to a survey released this week by Callan Associates, a San Francisco-based investment consulting firm.

   About half of the respondents to the Callan survey said they are undergoing a process called "controlled unwind" to reduce the risks in their existing securities lending programs and minimize current and future losses. Properly executed, an unwind involves recalling securities out on loan without incurring any financial loss or restricting either the number of transactions or the types of securities lent.

    Almost all the respondents are using their current custodian or securities lending provider for the unwind and most believe it will take one to three years to complete, said Callan.

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Unlike their European counterparts, U.S stock lenders have traditionally preferred cash collateral valued at about 102 percent of the lent securities. This is designed to reduce risk and provide an opportunity to reinvest the monies and increase the yield. However, some assets held in such pools such as mortgage-backed or asset-backed securities may become illiquid and hard to value or convert when cash is needed back.

Northern Trust and JP Morgan Chase are the targets of lawsuits from pension fund trustees for alleged wrongdoing resulting in large losses in from the cash collateral they reinvested for pension fund clients. As a result, many plans are also finding that it behooves them to ask more questions and pay closer attention to the fine print of their securities lending programs.

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Bottom line - in a market where an unknown but significant amount of trading is based on widely permitted and pervasive advanced looks compliments of the exchanges, ECNs and the regulators, and the balance consists of artificial buying from rolling buyins, only the most insane, or foolhardy or both, believe they can trade with any hope of short or long-term success.

Tyler is the man!  Could this be the fertilizer for the green shoots?  A market wide short squeeze that happens to benefit TARP recipients?  At the same time it drives up stock prices as short sellers have to cover.  What a brilliant solution!

But----Oh, wait!  It is driving the big institutional investors out of the market?  How can that be good in the long run.  The big boys are figuring out that all of that money that was collateral for the loans of stocks, and that they placed with some of the big institutional players for investment, might not be available when the short sellers, (the guys who borrowed the stocks), want to return the stocks. Have I got this right?  There sure are a lot of ways to screw up in high finance, especially when markets start to go down.  Who knew?

"It is not necessary to have hope in order to persevere."