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A Wikipedia Conspiracy and the Wall Street Meltdown
Posted by
kdawson
on Sun Oct 05, 2008 04:14 PM
from the controlling-the-public-discourse dept.
from the controlling-the-public-discourse dept.
PatrickByrne writes "This is The Register's world-class investigative piece concerning one aspect of the meltdown on Wall Street ('naked short selling') and how the criminals engaged a journalist to distort Wikipedia to confuse the discourse. The article explicitly and formally accuses a well-known US financial journalist, Gary Weiss, of lying about his efforts to distort a Wikipedia page under assumed names, and accuses the Powers That Be in Wikipedia (right up to and including Jimbo Wales) of complicity in protecting Weiss. This is not another story about a 15-year-old farm kid in Iowa pretending to be a professor. This is like the worst Chomskian view of Elites manipulating mass opinion. But it is all documented." We discussed the alleged Wikipedia manipulation when The Register first wrote about it last December. The submitter is the CEO of Overstock.com and a major player in this drama from the beginning.
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Your Rights Online: The Register Exposes More Wikipedia Abuse 524 comments
cyofee writes "The Register has up another article exposing abuse of Wikipedia's policies and processes. It tells a tale of a man, Gary Weiss, controlling the Wikipedia article about himself and his enemies (one of Wikipedia's biggest taboos) all under the blessing of the Wikipedia Cabal. A man who attempted to expose the affair on Wikipedia, along with his his entire IP range (some 1000 homes), was permanently blocked. This comes only days after the affair of the Secret Mailing list."
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Gee golley Jeepers! (Score:5, Insightful)
Politics on a wiki is downright bad and lie-heavy.
Dry scienc-y and math-y stuff is most likely right.
For Politick, I go to Faux-News for my daily News(R) and CNN for my other News(D).
Re:Gee golley Jeepers! (Score:4, Insightful)
Dry scienc-y and math-y stuff is most likely right.
It is. And it's actually kind of funny. A particular subject may be safe in the hands of experts for hundreds of years. Disputes resolved through educated discourse and research. Progress being made.
Then all of a sudden the academic topic intersects with a political or religious topic and all hell beaks lose. (Debate and research? Screw you we have talking points! )
Parent
Why troll? (Score:5, Insightful)
I don't understand why the parent was modded troll. He's telling the truth.
Wikipedia is an absolute gift on matters of knowledge in most ways, but its very strength in things like science and math articles are its very weakness in political pages... anyone, including trolls, can edit them. It's kind of hard to write a troll on, say, polynomials. It's all too common to do it to politicians.
And he's right about the US media becoming like the British media. There are no "neutral" media outlets anymore, if indeed they ever existed in the first place. Much as the UK has red papers and Tory papers, US news outlets now all have a bias of some kind. Fox is well known for tending to the right, CNN trended left in the early 90's (that one was a shame, as they were the only truly unbiased news outlet in America during the late 80's). NBC has gone so blatantly to the left that we call it's cable outlet "MSDNC".
Parent
perceptions (Score:5, Informative)
CNN trended left in the early 90's
...Yet remains right wing to those outside the US. Like all of your popular media, CNN falls far short, in questioning government and policy, of what ordinary attention to public interest, and common ethics, would require.
FOX, as we all know, is Murdoch, who murdered [counterpunch.org] mainstream journalistic discourse in Australia and the UK long before he started attacking it in the USA.
None of this is new. Real journalism doesn't get air time [commondreams.org] in the conglomerates. [socialistworker.org] You still have NPR... for now.
Parent
Re:Gee golley Jeepers! (Score:5, Insightful)
There's something wrong with using Wikipedia as a sole source.
There's nothing wrong with using Wikipedia as a starting point in your research.
Parent
I also read that (Score:5, Funny)
Re:I also read that (Score:5, Interesting)
Elephants are an expanding computing market.
Parent
Minitrue (Score:5, Interesting)
Excellent, Minitrue is working as planned. We can now commence with phase three or our diabolical plan.
welcome to the financial system (Score:5, Insightful)
In the wake of the SEC's crackdown, the mainstream financial press has acknowledged that widespread and deliberate naked shorting can artificially deflate stock prices, flooding the market with what amounts to counterfeit shares.
How is this different from the trillions of dollars in fake money that are created every year in borrowing/lending arrangements?
Re:welcome to the financial system (Score:5, Informative)
I think it is different because the borrowing/lending arrangements have real property [wikipedia.org] as collateral. So the money has actual backing, unlike shorting of stocks.
(I am not an economist)
Parent
it also ignores the artificial *inflation* (Score:4, Funny)
Naked shorting, as essentially leveraged speculation on downward price movements, does serve as a useful counter to the massive, and often highly leveraged (i.e. bank-created money) speculation on upward price movements that created the bubble that got us into this mess in the first place.
The Economist provides a nice tongue-in-cheek fake newspaper article from the future, in which regulators ban naked longs [economist.com] to avoid that sort of speculative market manipulation.
Parent
Re:welcome to the financial system (Score:5, Insightful)
You'd have to go into a bit more detail on exactly what sorts of arrangements you mean to produce a good answer here, but I can give you a partial answer.
No fake money is created in these situations. Money is just a measurement of value - it's a raw form we can convert assets into. But implicit in its idea is a notion of debt as an asset. If I hold a tag sale and sell some stuff, and I get $50 in cash for it, what is my cash, exactly? It's a sort of free-floating, transferrable debt - it means that somebody gave up something that was considered worth something, and obtained a certain amount of purchasing power. By giving up some books and disused furniture, I've obtained $50 of raw purchasing power. Now, in practice, this money is considered to be backed by the US Government - but that is, in the end, immaterial - all that matters is that the green pieces of paper are considered to have an amount of purchasing power.
The thing is, debts and future predicted events have purchasing power. This is what happens when, for instance, I subscribe to a magazine - I send a company $20, and I get 12 issues of a magazine. But 11 of those issues don't exist when I spend my money - what I'm buying is future magazines. This is why subscriptions are cheaper than newsstand - the publisher likes knowing that they have the next 12 issues sold in advance. But in exchange for the inconvenience of paying out for a product that isn't in existence yet, they give me a steep discount off of what I'd normally pay. What I'm really buying, though, isn't the future magazines - it's an obligation to send me the magazines. It's an intangible good - but it's still a good that has value.
Similarly, I can buy a future debt. Why? Because debt has value. And as long as something has value, it is worth money.
Fake money applies differently to naked short selling because there's deception involved - you sell the stock as though you know you'll have it to deliver, and then go try to deliver it. But the person buying doesn't know that. So there's fraud involved. That's the difference - value is being paid for something that is not what it is thought to be. And there fake money comes into it - because something is being represented as having value that it is known not to have.
Parent
Re:welcome to the financial system (Score:4, Interesting)
Uhh, no. It's just the foundation of the stock market. Our economy could get along just fine without any stock market at all. Private investment would do the job just fine, without being nearly as susceptible to fraud.
And I should also point out that this is all a brand new phenomenon. It's been less than 20 years that the stock market has gone so grotesquely out-of-whack, throwing us into several bubble and burst cycles. See: http://www.downside.com/charts/sp500asmall.gif [downside.com]
That's what happens when you change the tax code to eliminate dividends, and make all investors dependent on capitol gains, which requires a lot of finesse, and mostly luck (if not out and out fraud) to make sure you "getting out" at just the right time, when you can still find a bigger idiot with more money.
Parent
Re:welcome to the financial system (Score:5, Informative)
Um, given the US transitioned from quoting in mostly $1/8s to quoting in pennies during that time period, that is really not very surprising. Prior to that, the 12.5 cent tick size acted as a low-pass filter.
Parent
Excellent video on naked shorting (Score:5, Informative)
http://www.businessjive.com/ [businessjive.com]
Those wikipedia articles (Score:5, Informative)
Re:naked shorts (Score:5, Insightful)
A much better solution is to actually monitor the naked shorting occurring in the marketplace and enforce prohibition of the tactic. Stay tuned - the music has stopped on Wall Street and everyone is looking for chairs. Those who haven't paid off their powerful politicos enough will see the finger pointed directly at them. I'd think this is coming up pretty soon (unless they've all paid enough money into the political extortion fund... err, coffers).
Naked shorting is dirty, crappy stuff and those that engage in the practice should rightfully be put in jail. Unlike "normal" shorting, it does absolutely nothing for a society or market other than enrich the criminals perpetrating the crime. It puts small businesses (like overstock.com) out of business. It's just getting real attention now because ironically, the largest perpetrators of naked shorting (read: financials) are now becoming victim of their own practices.
(It should be noted that I'm a capitalistic heathen most of the time, but this naked shorting really is dirty pool)
Parent
Re:naked shorts (Score:5, Funny)
Naked shorting is dirty, crappy stuff and those that engage in the practice should rightfully be put in jail.
Fuck you! If I want to sit around in my underwear in my own home I should be allowed to do so without fear of being put in jail!
Parent
Re:naked shorts (Score:5, Funny)
Naked shorting is dirty, crappy stuff and those that engage in the practice should rightfully be put in jail.
Fuck you! If I want to sit around in my underwear in my own home I should be allowed to do so without fear of being put in jail!
Given that you're posting on Slashdot, odds are you've got plenty of company.
Parent
Re:naked shorts (Score:5, Informative)
A traditional short stock sale requires that you find someone who will loan you their shares in a stock you believe to be over valued. You then sell those shares to someone. When it comes time to return the shares you borrowed, you buy at the lower price that you expected and return them to the person you borrowed from. You get to keep the difference in price.
A naked short means you never borrowed the shares in the first place. You agreed to sell someone some shares and you have a certain amount of time to actually deliver the shares. The idea is that you will find someone to borrow from in the period during which you have to settle the transaction.
Problems arise when the settlement never occurs because the short seller can't find anyone willing to lend the stock and they are faced with buying on the open market at the current price. So they just don't bother to follow through because the cost will end up being, theoritically, infinite. When Broker B finds that Broker A hasn't delivered the stock, they can technically go out and buy on the market and have the bill sent to Broker A. But they rarely do this because what goes around comes around and they will eventually find themselves in the situation where one of their customers initiated the naked short. Whenever the shares aren't settled it's called a failure-to-deliver (FTD) and on any given day the value of the sales that aren't delivered is measured in the tens of billions of dollars.
Because of the FTD, buyers end up thinking they own stock that they don't. And brokers list the stock in the buyer's portfolio and tell the companies that the buyer is an owner of the stock. Companies can end up with more people thinking they own shares than actual shares exist. Leading to devaluation of the stock, limiting the ability of the company to raise funds by selling more stock, and affecting corporate voting.
Another problem is that companies with a small amount of stock in circulation and a fairly low market cap can find that on a daily basis there are more shares offered for sale than actually exist because short sellers are selling without ever finding a person to loan them the shares in the first place. Due to the massive amount of sales being offered the price plummets, defrauding honest investors of value.
Parent
Re:naked shorts (Score:4, Insightful)
Parent
Re:naked shorts (Score:5, Interesting)
Well, sort of. Now (as in, since a few weeks ago) it is altogether banned, but historically it has been allowed in limited form. Particularly market makers have usually been allowed to naked short if they are unable to borrow shares, because they are responsible for maintaining liquidity and they were assumed to be legitimate enough to settle up when shares were finally available. And price manipulation by a market maker should normally be very easy to spot, so it was not considered a huge risk to allow it (there were a couple cases where market makers got busted for abusive naked shorting, though).
It probably makes sense to ban it altogether, though, as the marginal increase in efficiency is probably not worth the general sense that there's a loophole for exploitation in the market, whether or not people are actually abusing it.
Parent
Re:naked shorts (Score:5, Interesting)
Admittedly that comes from Patrick Byrne's web site.
An excerpt from here. [rgm.com]
And from here: [ecnext.com]
Also a paper (PDF) from the Cato Institute [cato.org].
And back to Byrne. [deepcapture.com]
I personally don't think naked shorts represent the cause or even a cause of the current situation,
Parent
Re:naked shorts (Score:4, Funny)
As if naked shorters hold on to "their" stocks long enough to issue dividends.
Parent
Re:naked shorts (Score:4, Funny)
As if companies still issued dividends anyway.
Parent
Re:naked shorts (Score:5, Interesting)
Maybe not, but in order to cover their shorts and make money, they would need to find sellers who are willing to sell at an artificially low price. They would run out of stupid sellers pretty quickly. Only the stupidest sellers would want to sell at a price lower than the dividend potential or the company. The fair price of a stock is always proportional to its expected long term dividend potential.
There is money to be made on the back of short sellers who manipulate prices. It is pretty damn easy to buy their under priced securities and only sell them back at a fair price. There is not much incentive to sell when you are getting dividend potential worth more than the value of the stocks. And if short sellers can't find enough dumb sellers, they will only be able to cover at a loss or wait in hope of a price drop while issuing dividends until they are forced to cover by a margin call.
Parent
Re:naked shorts (Score:5, Informative)
Of course, the shorter didn't change any fundamentals of the company, so you would expect the price to rebound as the shorters are forced to cover their position. But take human nature into account. The sudden price drop can trigger panic selling-- basically the naked shorter is making a bet on their ability to trigger a panic.
The short position wins when the naked shorter buys up the stock at the artificially low price to cover their position. Small companies are the usual victims, since their price is manipulated more easily.
Parent
Re:naked shorts (Score:5, Insightful)
Yes and such attacks are often accompanies by fear, uncertainty, and doubt spread in the press by a group of journalists, whose articles curiously seem to mirror the short positions of major hedge funds. This places companies in a quandary. If they response to each incident of biased journalism they look weak and defensive, but if they keep silent then misinformation is unchallenged.
Also, one point I"m not sure readers appreciate is how much many algorithmic systems and ordinary investors as well rely on technical analysis, that looks at patterns in price movement as a guide to future price changes. Naked short selling can readily "poison" such the technical picture of a stock and make it appear much weaker than it otherwise would. I've seen it happen in a number of stock I follow. Don't ever assume that the market trades on fundamentals.
Parent
mod down, he's confused his theory with reality (Score:5, Insightful)
So wrong, let me count the ways ...
1) Parent baselessly (and falsely) assumes that a drop in the share price will not affect the profitability or solvency of the company.
2) Parent laughably believes that companies with plummeting share prices have lots of capital to issue dividends.
3) Parent apparently believes in some exogenous, universally quantifiable "fair price" of a stock that exists independent of its supply and demand.
4) Parent believes that investors have perfect information and that they could distinguish between a stock price that is legitimately falling and a stock price and one that is the product of manipulation.
5) Parent apparently believes that shareholders who sells below the mythical "fair price" of a stock are "stupid" regardless of the profitability of the trade, the future trajectory of the stock price, or even anticipated future trajectory.
Time for a reality check. The parent suggests that he would respond to naked short market manipulation by buying tons of stocks. But would he?
First, I'll make the very generous assumption that he has a "rational" bank with a similar "understanding" of economics that is willing to extend arbitrary credit to finance his splurge on tanking stocks.
So I assume he could, even though he can't. But would he?
I doubt it. By the parent's own reasoning the stock price really can't deviate at all from the "fair price." Before issuing the order he would cast judgment thusly:
"The free market does not lie! The fall in price must reflect a change in the underlying value of the company. Of course if I knew the asset was trading below it's God-Given Fair Price, I would immediately enforce that price by my own hand. Heavens! I'd leverage to infinity if I thought somebody was making a mockery of the Free Market!"
Parent
Re:mod down, he's confused his theory with reality (Score:5, Insightful)
because share price and market cap often act as a collateral of sorts for credit. and without the grease of credit, as you should know by now, the wheels don't turn so well....
Parent
Re:naked shorts (Score:5, Interesting)
No dividends paid by the short sellers. They borrowed the shares, sold them on the open market, money deposited from the proceeds in their accounts (with a minus sign next to it on their statements). Then, when the price falls, of the underlying stock, they buy back the number of shares borrowed, That's the idea, of a short sale, anyway.
Now, when they sold the borrowed shares, if a dividend becomes due, then the buyer gets the dividend from the company issuing the shares. The holders of record are the recipients of dividends and those dividends are paid by the company, not by the previous owners of the stock.
Buyers of shares have no idea they are even participating in a 'short'. Why not? Well, for one thing, the law says you can only initiate a 'short' on an uptick in the underlying stock, meaning: The stock price is on a rise. So, another anonymous buyer of the security is participating in a rising market in that stock. I am dealing in Option contracts that represent the price movement, over time, of a security, not the securities themselves. The market maker simply prices the loaned shares, based on the next transaction in the stock after my order, I never actually see them. The Optiions market runs on the principle that you best against a market only when the most recent transaction in the stock or Index was higher than the previous, and you bet in favor of a rising market only when the most recent transaction was a downward movement in price.
I did Options in the 80s and early 90s, and back then (and still) the term 'naked' was slang for 'uncovered'. I was betting against certain stocks and the market, as a whole, at times. I did not own the S&P 500 Index, so if I sold a 'call' on the S&P, that transaction was naked. The most I stood to gain was the strike price on the Option, which represented, loosely speaking, the price movement up, or down, of 100 shares of the underlying security. As the contract reached expiration it was time to either close out the deal, or, if the stock or Index rose suddenly, to buy back the calls. If the Option was sold as 'covered', it meant I had the underlying stock, and if I wasn't paying attention, a person holding calls on the stock could 'exercise' the call, and I had no choice but to deliver the real shares.
Let's say there is 7 weeks to go on XYZ stock, and the last transaction in the Market, for sale of XYZ was 'up' 12 cents at $100.12, and I decide to sell a 'call' on the stock of XYZ at a $97.50 strike price. I am betting that the stock will be worth, equal to or less than, $97.50 in 7 weeks. So I sell, say 10 calls, representing 1,000 shares of XYZ and pocket $300 per contract ($3000). The most I can gain is my $3000 [If the stock does indeed head south in time]. I'm on a margin account, and as long as I have enough credit i can ride out what I hope are temporary upticks in the XYZ. But if it keeps rising, the price of each is rising out there also, and it's rising fast because holders of those calls, who bought them at lower prices are seeing price reaction based on the XYZ movement in the open market AND the fact that Time is running out for a turnaround in XYZ. If XYZ options are at 8 bucks and I get cute, the holders of the calls can 'exercise them, and all of a sudden I need to come up with 1,000 shares of XYX at over $100 apiece. My $3k deposit, from the sale of the options, is dwarfed by a $100k+ obligation. This is not for everybody, that's for sure.
But I never sold 'covered' options, only 'naked' ones. It was speculative and dangerous, because the maximum profit was the amount collected on the sale of an option, and the potential loss was, theoretically, sky-high if not infinite. In the 'naked' scene you had to pay very careful attention to both price movement in
Parent
Re:naked shorts (Score:5, Informative)
Yeah, that's what bank regulations were supposed to be about. They were supposed to limit the amount of leverage or "margin ratio" as you call them. The government has clearly failed here.
want to read something scary? read this:
http://paul.kedrosky.com/archives/2008/10/03/quote_of_the_da_6.html [kedrosky.com]
In fact it is so good I'm going to post it right here:
"Here is the quote of the day:
"...we and other global firms have, for many years, urged the SEC to reform its net capital rule to allow for more efficient use of capital. This is the single most important factor in driving significant parts of our business offshore, so that our firms can remain competitive with our foreign competitors risk-based capital standards must become the norm. The SEC has made it clear that risk-based capital rules can be implemented only when the Commission is confident that firms employing value-at-risk models have robust credit and risk management policies in place."
Translated into English, this testimony from back in 2000 was from someone asking that major brokerage firms be permitted to increase leverage subject to oversight of their wondrous mathematical risk models. The request was agreed to four years later, in 2004, and it helped lead to the meltdown in independent brokers this year.
The speaker? Some guy named Henry Paulson, the then-CEO of Goldman Sachs. I wonder what happened to him."
Parent
Re:naked shorts (Score:5, Interesting)
The speaker? Some guy named Henry Paulson, the then-CEO of Goldman Sachs. I wonder what happened to him."
I'll just point out that Goldman has done reasonably well in all this, and that's probably because they did have good risk models. Warren Buffett recently invested in them, and he's one of the sharpest value investors out there.
Paulson's statement was broadly correct: what matters is the risk, not purely the leverage, and a fixed ratio for everybody did indeed give a less efficient use of capital.
Where things fell down wasn't the theory, it was the practice. The SEC, which has been a sharp and disciplined regulator for ages, apparently went out to lunch during the Bush administration, and specifically never followed up on this.
For a nice take on the SEC's abdication check out the "This American Life" episode "Enforcers". Not only does it have a great piece on the people tricking Nigerian scammers for fun, but the bit on the lameness of the SEC is very well done.
Parent
Re:naked shorts (Score:5, Interesting)
Bullshit! GS survived because they have Paulson as the treasury secretary. Paulson let other companies fail from the CDS manipulation, but when the target became GS the government stepped in and banned short-selling (among a lot of other things). It's nice to have your ex-CEO as the most financially powerful person in the world. Even other bankers [wordpress.com] made note of who the bailout really helps.
Buffet invested in them for 2 reasons. Based on what Buffet has said it sounds like the government tapped him and begged him to get in the market to instill some confidence. So for his troubles GS (and GE for that matter) is giving him a 10% dividend! Even with those terms Buffet himself said it was risky and I have to paraphrase here...'if a government bailout doesn't get done, GE and GS will be the 2 largest investment mistakes I've ever made.'
Parent
Re:naked shorts (Score:5, Insightful)
Without the ability to take on short positions, then we cannot have an efficient market, which depends on the ability of all participants to immediately take advantage of any mis-pricing in a security, whether it is too high or too low. Without being able to short something, then the only people that could take advantage of an over-pricing would be people that already own a stock, and they are far fewer in number than the market as a whole, so the whole dynamic would change. Under-pricings would disappear immediately, but even quite obvious over-pricings would linger on for far longer simply because very few people could capitalize on them and bring them back into line. You'd be open to all sorts of abuse and price manipulation on the long side of things because longs couldn't get "picked off" by shorts if they were trying to manipulate prices.
FWIW, a market can likely never be perfectly efficient without naked shorting, but in practice the more liquid markets are very close to efficient because it's always possible to find a lender of the share, so eliminating naked shorts still leaves us pretty close to efficient.
It all depends if you believe that there should be a fair market that quickly finds fair value. Some people think that in itself is a benefit for all of us; without it, I suspect we'd have far less investment overall, which would likely be devastating to the economy. Think about it - if there was a good likelihood that a significant over-pricing was present in every stock on the market because shorting was disallowed, would you be as likely to buy stock at all? I wouldn't, since I'd know that it's extremely likely I'd be overpaying for the thing.
Yes, investing in failure seems to be dirty, and it is indeed cynical, but since the stock market is all about betting (bah to you "investors" that think otherwise - you may be making a long term bet with a different risk profile, but you're still gambling with your money), why should we not be allowed to take the other side of that bet at market value if we wish?
Parent
Re:naked shorts (Score:5, Interesting)
Your argument seems to hinge upon the notion that without shorting stocks would be overpriced, and that thanks to shorting they are not. I refer you to every financial bubble in the last century as proof that stocks are quite capable of becoming overpriced despite the best efforts of shorting to keep them 'fair'.
Shorting is just one component in an unhealthy trading system that has little to do with directing investment capital to those ventures with the greatest likelihood of being productive and profitable. Rather, the financial system has degenerated into a collection of gambling rings where high rollers lose and win fortunes trying to game the system.
The stock market was conceived in an era that long predated instant communication and the ubiquitous availability of information. It was originally intended to make capital available to enterprise, though of course there has always been a gambling element to it. But today, with instantaneous communication and information availability, there is no need for a trading market for those who simply wish to invest and divest capital in companies they believe to have strong prospects for profitability. The day trading and manipulation of stock prices and markets are now artifacts of an obsolete, dysfunctional system.
Had the financial markets collapsed in the recent crisis, and if the trading floors were to close permanently, then they would be easily replaced by direct investment with individual companies by individual and institutional investors with an actual interest in the productivity and profitability of the companies in question. In the end, our economy would probably be better off. And even if the system were slightly less efficient, the difference would simply be paid for out of the pockets of wealthy investors who currently clean up to the tune of $500 billion or more each year. Companies and their employees in the working and middle class would almost certainly be unaffected, or actually be better off in the final analysis.
There is simply too much money to be made to ever hope that we could close the world's financial markets to all but legitimate, long-term investment, but 99% of the people in the world would almost certainly be better off for it.
Parent
Re:naked shorts (Score:5, Insightful)
"Mom, I found this guy who will pay an outrageous price for a 2003 Saab 9-5 in good condition, like the one in the driveway that you're not using since you got your BMW. I can get another one just like it at a lower price, but I can't get it until next Wednesday. If I give you a hundred bucks, can I sell yours to this guy and replace it next Wednesday?"
Which illustrates the point that shorting of borrowed shares can't be eliminated unless you make transferring shares between people illegal, because for a sufficiently liquid asset you're always going to be able to find someone willing to lend you what they've got for the right price, and this lending does not have to happen through any official channel, they just need to be able to sign the stuff over to you and negotiate a repayment plan on the side. The only reason this doesn't happen in practice with cars is that a) finding "the same" car to replace the borrowed one is not necessarily easy, whereas with a stock most shares are equivalent, and b) it's quite a bit more difficult to transfer ownership and possession of a car than a share of stock.
Parent
The problem there is more odious (Score:5, Interesting)
The more worrysome problem there, though, is that the USA system (and probably a few others) works on IOUs that are indistinguishable from real shares even to those who own them. In your car analogy, essentially you'd sell the car, but when mom looks in her garrage, she still sees the car there.
But analogies aren't even necessary, let's look at the real thing. Let's say we have the following actors: Mr Investor who owns 1000 shares of IBM, Mr Broker who does the shorting, and Aunt Emma who's gotten into her head to invest her savings into IBM stock. Now the initial stages of shorting look like this:
1. Normal shorting.
Mr Broker borrows the 1000 shares from Mr Investor, and replaces them with IOUs. Then he sells the 1000 shares to Aunt Emma.
Hopefully temporary outcome: Mr Investor now owns 1000 IOUs for IBM shares, Aunt Emma owns 1000 IBM shares.
2. Naked shorting.
Mr Broker doesn't bother even locating Mr Investor, and just sells Aunt Emma some 1000 IOUs.
Hopefully temporary outcome: Aunt Emma now owns 1000 IOUs for IBM shares, Mr Investor still owns his 1000 IBM shares.
The problem, the way I understand it, is that in both cases, the IOUs are indistinguishable from the real thing by anyone outside the DTCC. (The big hub where those transactions take place.) In both cases, both Aunt Emma and Mr Investor can look at their portfolio at any given time, and they _both_ will see that they own 1000 IBM shares. Genuine shares, not IOUs.
In both cases, 1000 shares just became 2000 shares. And the effect can further cascade, as Aunt Emma's shares can be loaned by somebody else, creating another 1000 IOUs that are indistinguishable from real shares. And so on. At some point 10 different people can show up and demand vote with their 1000 shares each, but they're all the same 1000 shares, duplicated in that process. And someone can look and see the extra shares around artifficially inflating the supply on the stock market.
Basically to go back to your analogy, after all, temporarily Mom _and_ this guy own the same car as if it were two different cars. And the car can be further duplicated down the line like that, until the whole bloody neighbourhood owns a car each... and they're all the same car: mom's 2003 Saab.
I wouldn't have a problem with it, if the IOUs were clearly marked as IOUs, and not as real shares. Then either Aunt Emma or Mr Investor can look at their portfolio and go, "ah, I'm still owed 1000 shares by that guy." But they don't. They both see that they have 1000 shares.
I think understand the reasoning behind hiding those details. After all, Aunt Emma paid for her shares, might as well hide the details, delays and imperfections in the system, and just pretend that she owns the shares already. The actual transfer will happen in the background, all will balance out, and she doesn't need to worry her head with all that. Ain't life grand, when the system just makes things work in the background, and you don't even have to know when the actual transfer happened or how?
Well, yes, except when it fails. The more obvious way is when you still have the IOUs, but the person owing them to you just went out of business. Refco's fallout apparently left hideous numbers of IOUs out on the market, and nobody except the DTCC can tell which are real shares and which are IOUs. As long as the two are exactly the same for everyone else, it doesn't even matter if it was normal shorting (and Mr Investor is left holding the IOUs thinking they're real shares) or naked shorting (Aunt Emma is.) In both cases, some duplicate shares are left on the market, and are screwing not only the companies, but also the individual investors. But then there's obviously also the situation where the system is gamed and IOUs are just left around to accumulate, at either end, pretending they're real shares.
I just can't see how or why that kind of a system is even legal.
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Re:The problem there is more odious (Score:5, Interesting)
Let's remember how banks work though - for my example assume we only have 1 bank in this economy:
Aunt Emma has $1000 of saving which she puts into the bank.
Farmer Gyles Goes to the bank and asks to borrow $1000 to spend on a new barn.
The bank says, "Ok we'll give you the mortgage, but if you mess up we'll repossess your farm and sell it off to make back the money"*
Farmer Gyles employs a number of labourers to build this barn who all put all the money from this back into the bank to save for a rainy day.
As far as the bank is concerned it has $1000 in the vault, a Gyles who owes it $1000 + interest, and the bank owes $2000 to its depositors.
The bank in theory could then go on and lend the money out again and again as long as it had confidence in it's debtors and as long as the investors didn't all suddenly demand their money back.
The point is with the combinations of IOUs and creditors then $1000 has become $2000.
This is fundamental to how the banking system works - how else would you have a bank operate?
Yet if you replace the term $ with a stock unit and suddenly it should be illegal?
*Obviously you would never lend the full $1000 out again, you'd keep some in reserve, but this simple example illustrates the principle.
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Naked Short Selling is a Scam: Here's How (Score:5, Insightful)
In every market you've got supply and demand. They balance at the asset price.
Then comes naked short selling. The naked short sellers don't need to borrow shares before they sell them. So unscrupulous agents start creating supply out of thin air. What happens next? As every fool knows, an increase in supply causes the price to drop. Unscrupulous parties continue to naked short the stock, saturating demand through successive price floors. As the price drops, stop-loss orders are activated, exacerbating the decline. Momentum traders will also short the stock. Pretty soon the share price has crashed, the company faces bankruptcy, but the perpetrators can easily cover their position at bottom dollar making millions. All of this is perfectly legal under SEC's rules regarding short sales, REG SHO.
Naked short sales completely destroy the relationship between supply and demand. It allows well connected insiders to make millions or even billions by ruining the market for everybody else.
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Re:Naked Short Selling is a Scam: Here's How (Score:5, Insightful)
Yes. Naked short-selling clearly can be used to manipulate the prices of stocks.
The question is whether it has been used. And that's a far, far murkier issue. There are a bunch of important aspects of it, and particularly of Byrne's claims about it, that are in no way well-established.
1) Was naked short selling used by a specific investor (who Byrne referred to as a "Sith Lord") to drive down Overstock.com's share price?
2) Was naked short selling used to drive down the share prices of financial stocks, hastening the current financial crisis?
3) Was, as Byrne is implying by declaring victory in this affair now that the SEC has cracked down on naked short selling, the person or people responsible for shorting the financial stocks the same person or people who manipulated Overstock's price?
These are big questions that remain totally unanswered. Some scandalous details about sockpuppeting on Wikipedia (brought to you by an editor who was banned from Wikipedia for sockpuppeting) should not distract from those key aspects of Byrne's claims.
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Re:Chomskian!? (Score:5, Insightful)
An editor with a nefarious agenda manages to keep a hold of his account for 2 years because the wikipedia elites have an axe to grind against the nefarious editor's opponents. Who in the end turn out to be correct.
If that's not emblematic of everything that's wrong with wikipedia i don't know what is.
Oh, and at least according to Weiss's blog, he's still a contributing editor for Condé Nast Portfolio. I don't know about you, but sustained and concerted efforts to distort a subject should be a firing offense for journalists.
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Re:Chomskian!? (Score:5, Informative)
Those who modded this post up might want to look at who Phil S is (i.e. he's not a neutral observer).
The fact is, that anyone who has seen the evidence knows that Gary Weiss had a conflict of interest broke Wikipedia's rules on numerous occasions and had the support of influential admins (up to and including the odious Wales, who is apparently willing to change one's Wiki bio in exchange for sex.) in doing so. Anyone who looks at the evidence knows that Mantanmoreland is Gary Weiss. The evidence is overwhelming.
As far as Wikipedia is concerned, it does not matter whether Weiss or Byrne was right about naked short selling. What matters is that a small group of corrupt people knowingly abused Wikipedia and still wouldn't admit they were wrong when presented with overwhelming evidence by all sorts of people.
That's the issue here: Wikipedia is corrupt.
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Re:Please, please read the fucking article (Score:4, Informative)
No. It's not a great piece of investigative reporting. It's a shit piece of investigative reporting that is held together by insinuation at several key steps, and omits details unfavorable to the argument it's trying to make at other key steps.
Let's go into detail.
"An editor at The Journal asked me to write it, and I told him he wouldn't be allowed to publish it," Byrne says. "He insisted that only he controlled what was printed on the editorial page, so I wrote it. Then, after a few days, he got back to me and said 'It appears I can't run this or anything else you write.'"
This is a serious accusation of editorial malfeasance at another newspaper. No reputable publication would print this without a corroborating source. The lack of any detail whatsoever - and the fact that this is, in and of itself, a wildly bigger claim than any of the stuff about Wikipedia makes it clear that no corroborating source exists. This is Byrne making outlandish claims that are being reported without comment, and endorsed by the Register, which goes on to say "The Journal never changed its stance."
In the wake of the SEC's crackdown, the mainstream financial press has acknowledged that widespread and deliberate naked shorting can artificially deflate stock prices, flooding the market with what amounts to counterfeit shares. But for years, The Journal and so many other news outlets ignored Byrne's warnings, with some journalists - most notably a Forbes.com columnist and former BusinessWeek reporter named Gary Weiss - painting the Overstock CEO as a raving madman.
Well, no wonder. Byrne's claim was always that Overstock was being manipulated - by a specific individual he claimed to know the identity of. That's a far cry from "naked shorting can artificially deflate stock prices." But the article treats them as equivalent claims.
Roger Schneider had recently fired his brother from the Ramsey, New Jersey Nationwide office, and he was sitting on Floyd's work PC - which was packed with several thousand email messages. Patrick Byrne soon paid Roger Schneider a visit, and Schneider gave him the machine. Byrne offered $10,000 in return, but Schneider declined.
This is the extent of the hard evidence presented. Now, as someone familiar with Wikipedia who has looked at the situation, I'll note, I'm wholly convinced Mantanmoreland was using sockpuppets against Wikipedia policy. I'm agnostic on whether he's Gary Weiss, but that's more because I dislike picking into editors' real life identities than anything else.
But this is not evidence. The "investigative journalism" that Byrne is praising here is BYRNE'S OWN ACCOUNT OF BUYING A PC WITH E-MAIL RECORDS ON IT! That's not investigative journalism! That's "Hey, I magically got these e-mails, do you want to report on them?" What steps did the Register take to verify the authenticity of the computer and the e-mails? Did the Register get access to the e-mails on the computer Byrne obtained, or were the e-mails forwarded? Did they get the original e-mail files, or screenshots? All of this is hugely material, and completely left out of this "investigative" piece, leaving it as Byrne reporting claims to the Register, then coming to Slashdot and praising the investigative prowess of the Register in repeating what he said to them verbatim.
"Now, admittedly, we - being Wikipedia as a whole - should have listened to Judd in the first place, but there was a long time where Judd's behavior was counter-productive."
Understatement of the year, but detailing the appalling tactics used by Bagley and Byrne on Wikipedia would undermine the Register's point.
The Register has also reviewed emails in which SlimVirgin indicates that she was a classmate of Byrne's at King's College, Cambridge in the late 80s.
What? Were these emails from the same computer? Or is this the e-mail that Bagley already has posted to antisocialmedia.net about this- an e-mail that's to Bagley, from Byrne, and so continues to not elevate this
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Re:How ironic... (Score:5, Informative)
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Re:How ironic... (Score:5, Insightful)
Come on, Judd. You've got to know you can't actually expect to come to a forum as well-traveled as Slashdot and get away with presenting half the facts like that.
I love how well prepared you are for this argument. Do you do anything else than hanging around on Wikipedia, fighting trolls and sockpuppet, and watching places like slashdot, in case the peasants try to fight back?
Now the facts are: Naked shorting has cost the US economy billions and billions of dollars. That may have been "POV" in Wkispeak (when I read some "Wikipedians" it really reminds me of Orwell), today it has been dramatically proven to be true. For a long, long time Wikipedia failed completely to create a neutral article about the subject, instead it allowed an interested and well-connected (within Wikipedia) party to manipulate the article. Shit happens. We could hope that Wikipedia learns from its failures, but the chances seem slim.
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Re:Confirms Wikipedia's Malleability (Score:5, Interesting)
This case is direct evidence for Chomskian media theory. (As if there wasn't enough already -- Chomsky has compiled literally thousands of incidents)
Why do you think the press would be any different than Wikipedia? Because it is permanent? Nobody cares about yesterday's news anyway. Because you need to be hired to join? Getting hired is easy -- essentially any interested party can join. Because journalists have integrity? I won't accuse all journalists of being disingenuous, but this particular journalist was caught manipulating both wikipedia and the mainstream media.
Certainly, if you let a fox in your hen house, you should expect your dinner to get eaten -- whether the metaphorical hen house is Wikipedia or the mainstream media.
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Re:Oh give me a break -- why Mr. Ad Hominem? (Score:5, Insightful)
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Re:Oh give me a break (Score:4, Insightful)
making the process transparent
Like circling the wagons around Mantanmoreland?
Transparency means, among other things:
Hiding behind pseudonyms is, by definition, not transparent, and is an invitation to opaque Mantanmoreland-like sock puppetry.
Judd Bagley openly associates with the editors who tried to subject me to police harassment. Given that, the intentions he has in outing editors should be clear.
And if you knew who the identities of the people who were doing this to you, you could point the police back at them.
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Re:Oh give me a break (Score:5, Interesting)
The BADSITES pseudo-policy [wikipedia.org], which for a time led Wikipedia editors to be threatened with being blocked or banned for daring to link to antisocialmedia.net [antisocialmedia.net] or Wikipedia Review [wikipediareview.com] (among other things), was a sterling example of Wikipedia's concept of "openness".
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