A Wikipedia Conspiracy and the Wall Street Meltdown

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.

Gee golley Jeepers!

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).

Why troll?

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".

Re:Gee golley Jeepers!

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.

I also read that

the African population of elephants had tripled in the past six months.

Re:I also read that

Elephants are an expanding computing market.

Minitrue

Excellent, Minitrue is working as planned. We can now commence with phase three or our diabolical plan.

welcome to the financial system

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

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)

Re:welcome to the financial system

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.

Excellent video on naked shorting

For those that are interested in exactly what naked shorting is, here is an EXCELLENT explanation of what it is and why it's bad. I believe this is Patrick speaking on the topic. I highly recommend it for anyone interested in the topic, stocks in general, or the financial crisis we're paying $700B for, if you're willing to spend an hour or so learning about it. It gets into the nuts and bolts technicalities and doesn't question the viewer's intelligence. (I'm not affiliated with it in any way, but was simply impressed with it when I watched it a year or two ago)

http://www.businessjive.com/ [businessjive.com]

Those wikipedia articles

Gary Weiss [wikipedia.org], Patrick M. Byrne [wikipedia.org]. Showing the clear and overwhelming bias in favour of Weiss and against Byrne.

Re:naked shorts

Bad idea. So I can take as much short interest as I want up to infinity and that would be legally ok? Hmm, if that were the case, I could drive every stock down to zero then not worry about having to locate stock, because of the abundance available due to those getting margin calls.

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)

Re:naked shorts

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!

Re:naked shorts

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.

Re:naked shorts

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.

Re:naked shorts

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.

Re:naked shorts

Shorting of all kinds should be banned. It is an abuse of the property rights that form the foundation of capitalism.

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.

Where these rules are broken, where markets are inefficient or failing, where the right to own something is abused - as in the instance of shorting, where individuals are deliberately investing in failure - the system does not generate net benefit for all.

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?

Naked Short Selling is a Scam: Here's How

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.

Re:Naked Short Selling is a Scam: Here's How

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.

Re:Chomskian!?

I've not read any of Chomsky's political theory. But this is definitely a case of the worst sorts of abuses that Wikipedia is susceptible to.

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.

Re:How ironic...

Wrong. He wrote the entire article himself. Look at the article history [wikipedia.org]. Gary Weiss is Mantanmoreland, Lastexit, and 70.23.245.232 And yet, believe it or not, those who attempted to restore some reason to this madness were the ones who were permanently banned from Wikipedia (myself included).

Re:How ironic...

Gee, Judd. I wonder why that could be. Might have had something to do with the fact that your definition of "reason to this madness" consisted of abusively using multiple accounts to push your agenda, and launching vicious personal attacks against your opponents.

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.

Re:Confirms Wikipedia's Malleability

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.

Re:Oh give me a break -- why Mr. Ad Hominem?

Your entire post is an Ad Hominem argument. It says nothing about the truth or otherwise of the accusations against Gary Weiss and others.

Re:Oh give me a break

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".