Naked Short Sales Hint Fraud in Bringing Down Lehman

Naked Short Sales Hint Fraud in Bringing Down Lehman - Bloomberg.com
By Gary Matsumoto

March 19 (Bloomberg) -- The biggest bankruptcy in history might have been avoided if Wall Street had been prevented from practicing one of its darkest arts.

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.

“We had another word for this in Brooklyn,” said Harvey Pitt, a former SEC chairman. “The word was ‘fraud.’”

While the commission’s Enforcement Complaint Center received about 5,000 complaints about naked short-selling from January 2007 to June 2008, none led to enforcement actions, according to a report filed yesterday by David Kotz, the agency’s inspector general.

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Airport Runway

On Sept. 17, two days after Lehman Brothers filed for Chapter 11 bankruptcy, the number of failed trades climbed to 49.7 million, 23 percent of overall volume in the stock.

The next day, the SEC announced its ban on shorting financial companies in 2008. The number of protected stocks ultimately grew to about 1,000. On Sept. 19, the commission announced “a sweeping expansion” of its investigation into possible market manipulation.

The ban, which lasted through Oct. 17, didn’t eliminate shorting, according to data from the SEC, the NYSE Arca exchange and Bloomberg. Throughout the period, short sales averaged 24.7 percent of the overall trading in Morgan Stanley, Merrill Lynch & Co. and Goldman Sachs Group Inc. on NYSE Arca. In 2008, short sales averaged 37.5 percent of the overall trading on the exchange in the three companies.

To date, the commission hasn’t announced any findings of its investigation. Pollack, the former SEC regulator, wonders why. “This isn’t a trail of breadcrumbs; this audit trail is lit up like an airport runway,” he said. “You can see it a mile off. Subpoena e-mails. Find out who spread false rumors and also shorted the stock and you’ve got your manipulators.”

Interview with Max Keiser on financial crisis

Max Keiser's site. Wikipedia.

Gradual Evolution to a Global Currency

Get ready for the phoenix. The Economist: Vol. 306: January 9, 1988: pages 9-10

“THIRTY years from now, Americans, Japanese, Europeans, and people in many other rich countries and some relatively poor ones will probably be paying for their shopping with the same currency. Prices will be quoted not in dollars, yen or D-marks but in, let's say, the phoenix. ... a few more stockmarket crashes and probably a slump or two will be needed before politicians are willing to face squarely up to that choice. ... The world phoenix supply would be fixed by a new central bank, descended perhaps from the IMF. ... The phoenix would probably start as a cocktail of national currencies, just as the Special Drawing Right is today. In time, though, its value against national currencies would cease to matter, because people would choose it for its convenience and the stability of its purchasing power. ... Pencil in the phoenix for around 2018, and welcome it when it comes.”

On March 25, Timothy Geithner, Treasury Secretary and former President of the New York Federal Reserve, spoke at the Council on Foreign Relations, when asked a question about his thoughts on the Chinese proposal for the global reserve currency, Geithner replied that,

“I haven't read the governor's proposal. He's a remarkably -- a very thoughtful, very careful, distinguished central banker. Generally find him sensible on every issue. But as I understand his proposal, it's a proposal designed to increase the use of the IMF's special drawing rights. And we're actually quite open to that suggestion. But you should think of it as rather evolutionary, building on the current architectures, than -- rather than -- rather than moving us to global monetary union.”

A recent article in the Economic Times stated that,

“The Group of 20 leaders yesterday gave approval for the agency to raise $250 billion by issuing Special Drawing Rights, or SDRs, the artificial currency that the IMF uses to settle accounts among its member nations. It also agreed to put another $500 billion into the IMF’s war chest.”

Read Full Article.

Glenn Greenwald on Wall Street's ownership of government

Glenn Greenwald - Saturday April 4, 2009 08:35 EDT
Read Larry Summers, Tim Geithner and Wall Street's ownership of government - Salon.com. Snip:

Just think about how this works. People like Rubin, Summers and Gensler shuffle back and forth from the public to the private sector and back again, repeatedly switching places with their GOP counterparts in this endless public/private sector looting. When in government, they ensure that the laws and regulations are written to redound directly to the benefit of a handful of Wall St. firms, literally abolishing all safeguards and allowing them to pillage and steal. Then, when out of government, they return to those very firms and collect millions upon millions of dollars, profits made possible by the laws and regulations they implemented when in government. Then, when their party returns to power, they return back to government, where they continue to use their influence to ensure that the oligarchical circle that rewards them so massively is protected and advanced. This corruption is so tawdry and transparent -- and it has fueled and continues to fuel a fraud so enormous and destructive as to be unprecedented in both size and audacity -- that it is mystifying that it is not provoking more mass public rage.

Bill Moyers Journal on Banking Fraud

The financial industry brought the economy to its knees, but how did they get away with it? With the nation wondering how to hold the bankers accountable, Bill Moyers sits down with William K. Black, the former senior regulator who cracked down on banks during the savings and loan crisis of the 1980s. Black offers his analysis of what went wrong and his critique of the bailout.
Watch the Bill Moyers Video with William Black.
How the FBI Blew It and Why There's No 'Perp Walks'.
Geithner's Stress Test "A Complete Sham".

Tax Havens: The Hidden Hand in the Financial Crisis

Transparency Key to Effective Reform of Global Financial System in G-20 Process

PRNewswire-USNewswire / Transparency Key to Effective Reform of Global Financial System in G-20 Process

"There is a shadow financial system comprised of tax havens, secrecy jurisdictions, disguised corporations and anonymous trusts which facilitates the movement of corrupt, criminal, and commercially tax-evading money across borders and around the world," says Raymond Baker, director of Global Financial Integrity (GFI). "This shadow financial system is at the heart of the current global economic crisis. Secrecy prevents accurate appraisal of the depths of the subprime mortgage collapse and other collateralized debt obligations, credit default swaps, derivatives contracts, and more. Lending has nearly collapsed since financial institutions are unable to discern the quality of assets of those needing funds."

G-20 Meeting

I'm having a very good crisis

'I'm having a very good crisis,' says Soros - Mail Online

While the financial crisis continued to deepen across the globe, the 78-year-old still managed to make $1.1 billion last year.
'It is, in a way, the culminating point of my life’s work,' he told national newspaper The Australian.

America’s Oligarchs and the Financial Crisis

The Quiet Coup - The Atlantic (May 2009):
"The Quiet Coup: America’s Oligarchs and the Financial Crisis"

Here is an article from the chief economist of the IMF in 2007 and 2008...

The financial services industry by using a confluence of campaign finance, personal connections, and ideology there flowed, in just the past decade, a river of deregulatory policies that is, in hindsight, astonishing:
• insistence on free movement of capital across borders;
• the repeal of Depression-era regulations separating commercial and investment banking;
• a congressional ban on the regulation of credit-default swaps;
• major increases in the amount of leverage allowed to investment banks;
• a light (dare I say invisible?) hand at the Securities and Exchange Commission in its regulatory enforcement;
• an international agreement to allow banks to measure their own riskiness;
• and an intentional failure to update regulations so as to keep up with the tremendous pace of financial innovation.