Posted on 09/03/2005 8:02:05 PM PDT by abletruth
You have no knowledge nor understanding about futures and neither does Dateline and CNBC is a COMMIE channel. This is article is mostly garbage.
Delta has been in trouble for years and years and years and YEARS!
You really shouldn't post about things you haves no knowledge of.
Those margin investors signed a hypothecation agreement. The agreement states that the firm can "loan" their shares for other sales, just as the investor can "borrow" from others.
I don't like short selling and I wouldn't engage in it--I'm not a trader--but I'm not sure how you can say that brokers are doing this without the permission of the stocks' owners.
Psssht.
I noticed you are new to Free Republic. Could you please be more honest in the future? The purpose of naked short-selling, a techinique used by hedge funds, is to cheat the unsophisticated investors out of their money. It is fraud.
PF, it really is my honest and sincere opinion that this article is an overblown pile of b.s. I mean, just look at the title: "STOCKGATE, the biggest scandal to hit the markets yet!" The "biggest scandal"? In the entire history of "the markets"? Really now. When someone is laying it on this thick, I say keep your eyes open and one hand on your wallet at all times.
What you are describing, when you get rid of the fancy terminology that makes you feel better, is fraud. Plain and simple. Just because it has become more prevalent doesn't make it right. It's like looting --"hey, everyone else was doing -- even the COPS!!"
IGB, I simply don't believe that short selling is an inherently fraudulent activity, and it just may be that you and I have different opinions on this. As far as terminology goes, I think the terms "naked short" and "counterfeiting" bring more heat than light to the discussion. As SAJ suggests, "willful failure to deliver" is really what the problem is all about.
For willful failure to delivers among market makers, which is typically in thinly-traded stocks where it is difficult to adequately make a market without occasionally doing it, the SEC clearly has their eye on the ball and is paying close attention to it. I say give them a chance to do their job.
If, as some are alleging, the big wall street firms are in fact allowing their hedge fund customers to carry open "failed to deliver" positions on equity securities for weeks or months or longer, then these firms are not following the existing regulations. I view this as a systemic credit exposure, and not a fraud, concern -- I don't care a whit if a hedge fund goes bankrupt because they guessed wrong on short sales, but I do not want to see them taking down the big wall street firms with them and disrupting the markets. Existing laws prohibit the wall street firms from allowing these open fail-to-deliver positions, which in economic substance is an extension of credit by the firms to these hedge funds, unless this is done using a margin account, which requires 150% margin on short equity sales, and which therefore protects the wall street firm and the markets at large if these hedge fund customers fail. I say if these allegations are true, then let's enforce the existing laws and kick a few back office butts at the wall street firms, if need be.
When NEITHER of two sides of a transaction hold actual certificates, how can such a practice be condoned? Have we pushed the multi-million dollar mathemeticians to the brink of inanity with an ever-increasing desire to come up with new ways to play the game?
You can bet the the originators of the idea of naked short-selling did not have the best interest of the companies they were trading in nor the real stockholders of said companies at heart.
When the markets become PURELY about personal gain without any sense of fiscal discretion, people will leave in droves, and not come back.
It reminds me of the fatherly broker figure in the movie with Charlie Sheen...There has to be a sense of fiduciary responsibility....somewhere.
That's not correct. In order to sell short I must first call our Margin Department's Stock Loan area to see if the firm holds enough shares for existing clients in margin accounts. If not, we cannot do the short sale. If so, it is approved.
At no time can the broker enter a short sale and later figure out how to borrow the shares to deliver.
Exactly! The Margin agreement that is signed allows the firm to loan your shares. Considering typically they have paid for half of them and you've paid for the other half...
If you don't want your shares loaned, don't buy them on Margin and don't keep them in a Margin account.
Pay for your trades in full and keep them in a cash account. Don't borrow against them and they can't legally be loaned.
If all broker-dealers followed your firm's procedures we wouldn't be finding as many fails in the interdealer market.
Let me simply ask us to consider whether this is a realistic principle from which to proceed.
The Founding Fathers understood that human beings will tend to look out for their own narrow self-interest, and that is why we are so fortunate to have a government with so many checks and balances. This is because, I believe, they understood the scriptures, and that there is no better understanding of human nature than that given us by the Holy Spirit, who said "the heart is deceitful above all things and desperately wicked; who can know it?"
The same principle in my opinion applies to the markets, including the financial markets. In designing our laws and regulations, we have to assume that all participants are looking out for their own narrow self-interest and will cut corners if they can, and proceed from there.
I am all for vigorous enforcement of the securities laws, and believe it is good thing for wall street to be read the Riot Act from time to time. However, when issues are misportrayed and overhyped in order to mislead people, we tend to get bad regulation as a result. The classic example in my mind is Sarbanes-Oxley. When confidence in the markets is undermined, politicians will do something, anything. While some of Sarbanes-Oxley included needed reforms, other parts were simply grandstanding sound-bites translated into law that produced enormous costs with little benefit, in my opinion.
Riiight couldn't have you "doing your thinking for you." How lame can you get?
No, I can't, because I don't believe in buying on margin. Why do people do it? I have no idea: they probably don't read through the margin form before signing it, and they don't have a broker that explains the consequences of what they are doing.
People do a lot of stupid things. People take out interest-only mortgages. People get second and third mortgages on their home. People run up horrific credit card bills and live paycheck-to-paycheck.
All of these things are legal. They're just not very wise choices for most people.
It is this lack of knowledge which the manipulators take advantage of. Short selling should be made illegal.
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