A Wikipedia Conspiracy and the Wall Street Meltdown 485
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.
Excellent video on naked shorting (Score:5, Informative)
http://www.businessjive.com/ [businessjive.com]
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)
Please, please read the fucking article (Score:2, Informative)
Please read the article, because there's no mention of 'Chomskian' or 'Elites' in there. In fact, it's a really great piece of investigative journalism. However, it seems the person submitting it to Slashdot, and the editor, were creaming their pants so hard that they couldn't resist a liberal heaping of sensationalism.
If anything it's Slashdot that's going downhill!
Re:How ironic... (Score:5, Informative)
No WR? disgrace (Score:2, Informative)
Re:Chomskian!? (Score:3, Informative)
In what way? I mean, yes - clearly an edit war went on with nasty and unethical POV pushing on both sides (The article's "world-class" reporting fails to note the extensive sockpuppetry and vicious attacks engaged in by Byrne and Judd Bagley). But... so what? There's not even any smoke here, little yet fire - Wikipedia's view of naked short selling did not reflect Patrick Byrne's view. Byrne, mind you, was a CEO who was publicly accusing a "Sith Lord" of manipulating his company's stock via naked short selling. So, you know, not exactly Captain Credible here either.
But the only grounds the story presents for thinking that this mattered is Byrne's suspicion that some journalists didn't cover the story because they checked and believed Wikipedia. First of all, Byrne has nothing resembling evidence for that. Second of all, how is that Wikipedia's fault? Wikipedia has always been very clear on its own reliability, and I know of no responsible editor of Wikipedia who would advocate its use as a source for journalists.
On top of that, the article presents no actual evidence that the information Weiss was adding was wrong. Yes, it is, at this point, clear that Weiss used sockpuppets to edit Wikipedia. But to date, no evidence whatsoever has been produced that Byrne's claim - that Overstock.com was being manipulated via naked short selling campaigns waged by a "Sith Lord" - was correct, or that, based on the reliable, published sources available at the time that Weiss was editing, the Wikipedia article should have read any different.
The extent of what has been shown here is that there was an edit war over naked short selling a while back, and that both sides acted pathetically during it.
Re:So? (Score:3, Informative)
Encyclopedias aren't for current events, nything related to current events on Wikipedia can be safely ignored.
"Naked short selling" isn't a current event.
It's a technical term with a definition.
The problem is that certain people were fucking around with that definition and lazy individuals (journalists) didn't consult with anyone who would have pointed it out.
Re:welcome to the financial system (Score:3, Informative)
How is this different from the trillions of dollars in fake money that are created every year in borrowing/lending arrangements?
For good or ill, taking an asset and repeatedly leveraging it over and over to generate wealth out of thin air and making everyone dependent on everyone else's well-being is the entire foundation of our economic system. Short selling is just a troublemaker critiquing the emperor's frugal fashion sense :)
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
not for the most part (Score:3, Informative)
A huge proportion of leveraged speculation is with uncollateralized loans. You don't think hedge funds are all backing up their lines of credit with tracts of land as collateral, do you?
Those wikipedia articles (Score:5, Informative)
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.
Re:naked shorts (Score:3, Informative)
Shorting of all kinds should be banned. It is an abuse of the property rights that form the foundation of capitalism.
Naked shorting is an abuse, I go along with that because you can do it without any investment at all, and people can naked short more stock than actually exists. But plain short selling requires you to borrow those stocks, they must actually exist, they can't be loaned multiple times invisibly, and you have presumably put up some collateral of some kind or no one would loan you the stocks, even if it is just your reputation.
No WR link? disgrace (Score:2, Informative)
Re:Naked Short Selling is a Scam: Here's How (Score:3, Informative)
For the Record: Byrne solicting mod points (Score:3, Informative)
=====COPIED============
The Most important favor I have ever made of you folks - Slashdot
Hey Sports Fans.
I don't often ask for your help, but I am asking for it now: rec this post and spread the word on what I describe below. I submitted to SlashDot.com Cade Metz's story from TheRegister. It was accepted. Right now it is on the home page ("A Wikipedia Conspiracy and the Wall Street Meltdown") of Slashdot.com.
The significance of that is that plenty of mainstream press looks at what does well on Slashdot, and then write about it. Ultimately, I think control of the Wikipedia page gave the miscreants the high ground from which to shape the discourse in the mainstream press, which is why it took so long for them to write about this issue long after the data had become incontrovertible. That means to break through the cover-up we had to follow the thread all the way back to Wikipedia, expose them there, then expose their hijacking of Wikipedia, then get the mainstream press to see that. It has all been done but the last step. Cade Metz's story is out. We need the mainstream press to notice it and write about it.
So go to Slashdot, read the story, and if you approve of the story, then vote for it (assuming you are registered). The more votes it gets, the longer it stays on Slashdot, and the more independent and mainstream journalists will start noticing and digging into this.
Patrick
Re:naked shorts (Score:4, Informative)
Yes, it is illegal. And I've not exactly done the research myself, just took what I've read and tried to summarize it. I posted a bunch of links here. [slashdot.org]
Re:naked shorts (Score:4, Informative)
Another thing you overlook, is that very few individual investors have the liquidity to qualify for naked short sales of stock, even if they have a margin account with a firm. In most cases, a broker will be prohibited from executing a naked short sale until the client deposits sufficient funds into the account to cover the purchase of the shares from inventory or from the street. You can't just call up a broker and say; "I want to open an account and short sell IBM for 20,000 shares.", the 'account representative' would fall off their chair laughing at you before they hung up the phone. Additionally, few firms are willing to allow clients to become leveraged in put options on a stock without sufficient liquid assets to cover any loss. Much of the naked shorting is being done by firms, through their traders, is an attempt to acquire the stock at lower prices than they could if they were dealing with covered put options and these actions are as close to market manipulation as the law allows.
Re:naked shorts (Score:3, Informative)
The 'closing' date of a transaction is always seven business days after execution,
It's 3 days, currently. Used to be 7.
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."
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.
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.
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.
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.
Re:naked shorts (Score:1, Informative)
At the first hint of trouble, the hedge funds piled on with the naked short selling of the investment brokerages in trouble. They forced the loss of confidence in the broker going down. The lower the share price, the larger loss of public confidence, starting the run on deposits and funds, thus ensuring the crash of the broker (Bear Sterns, Lehman Brothers, Merrill Lynch, etc.).
Naked short selling also participated in the start of this 2 years ago with the ABX index that was the trading vehicle for sub prime mortgage securities. Shorting that index to 20 cents on the dollar, depressed the market prices that the banks, insurance companies, brokerages, etc used to mark their investment to the market (mark to market).
It was not the absolute cause, but was a VERY large factor in crashing this market. With out naked short selling, the crash could have been contained and managed better with out the credit squeeze that we are seeing now.
Re:Naked Short Selling is a Scam: Here's How (Score:3, Informative)
Yes, short selling is necessary because otherwise it's very difficult for prices to correct themselves downwards. Imagine you have a market composed of 10,000 people, of which 100 own stock in XYZ Corp. Now, if the price of XYZ is too low, any of the 10,000 players in the stock market can immediately jump on that and correct the price by buying until the price is fair. But if the price is too high, only one of the 100 owners can correct the price. Which means that roughly speaking, underpricings will be corrected 100x as fast as overpricings, so the overwhelming likelihood is that any stock on the market is currently trading at greater than fair value. Which is when people go and find another market to play in, preferably one with rules that allow fair market value to be converged on far more quickly...
Re:naked shorts (Score:3, Informative)
Since we brought in fiat currency and fractional reserve banking?
Re:naked shorts (Score:3, Informative)
Hmm, sounds like The Producers a classic Mel Brooks comedy. For people who haven't seen it here's the gist, timid accountant Leo Bloom explains to shifty Broadway producer Max Bialistock how he could make money on a flop play. Basically, all he has to do is oversell shares in the play by a huge amount, then when they play tanks, no one will expect their shares of the profits.
Then, much as in the current derivatives market, hilarity ensues.
Oh, also, frighteningly prescient was an episode of Really Weird Tales [amazon.com] (an SCTV movie that's hard to find now) about a small town making money on no money down home sales. Why the whole town got rich selling houses to each other! Then those people got rich by reselling the houses to other people in the town. Until, finally, well I won't spoil the ending but it kind of has been spoiled by Congress....
Actually, no one explains it better than my favorite blog, Dr. Housing Bubble [doctorhousingbubble.com]
Re:welcome to the financial system (Score:3, Informative)
You confuse "privately held" with "private investment". The two aren't the same.
Re:naked shorts (Score:3, Informative)
You're correct there. I stand corrected. The dividend is paid by the short seller to the firm that loaned them the stock to sell. I'd forgotten that, but a short seller is working on a short time period, in terms of the deadline for closing out the short sale. I never paid a dividend out because I was timing things. and I was using the options mechanism, so I was participating ONLY in the movement of the stock price, up or down, from the point at which the stock was valued on the Market at the time of the sale or purchase of an option.
What we don't often consider is this, in options: On the date of payment of a dividend on a stock (the ex-dividend date), the price of the stock, technically drops by the exact amount of the dividend. These dividend dates are already factored into the price of the call and put options, BUT, if the stock is moving in price, against the interests of the seller, then the buyer may exercise the options earlier (right before the dividend date). However, the value of the options contract also drops on the ex-dividend date.
when I was working with options we were always cognizant of dividends, not because they cost much, they have little effect, actually on option prices, but because they impact the psychology and 'plans' on the buyers' end. What it all means is that I was never paying dividends to anybody, when using options to participate in the movement of stocks or Indexes, but i would 'shop' for options that included upcoming ex-dividends in their pricing, of course. Like i mentioned yesterday, it all required paying a lot of attention to factors besides my feeling, or beliefs, about underlying values of the company being considered for a short. That goes for before-the-decision to purchase or sell, and every day of the time period where i was on the hook for various options.
I would have to look into straight short sales of stocks, as opposed to Options, in order to find differences in the rules and mechanisms for pricing. I preferred options because of the huge leverage. On a short term deal (options contract, with an expiration date) it was a lot cheaper to spend $150-400 or so to participate in the rise or fall of 100 shares, that it would have been to borrow, or buy, the underlying shares at 100 times the value of one share. very risky, but a much wider risk/reward ratio, also. And at a far cheaper point of entry into the market in the stock.
Again, as far as dividends and interest rates, and anything else that could affect the stock's value... those factors are priced in to the current 'bid/ask' on the option contract, and the effect of that pricing-in (the 'cost' in other words) was compared to my own fair market assumptions. A wide gap meant do not consider, whereas a smaller gap meant: more attractive.
Options are really the way to go, if one already holds stocks, individually or in mutual funds, etc. Because the prices of the options contracts are so closely tied to the underlying values, an investor can use them in two very straightforward ways: To take advantage of a rise in the value of their holdings, without having to close out their positions in the held stocks, OR, to use the option as insurance, by paying a premium, upon purchase for the option, (That premium being the 'most' one stands to lose) that only loses value if the underlying stocks rise. Of course the offset in the lost premium might negate the 'paper' profit in the rise in value of the person's holdings, but the holdings, if not sold, have in fact risen. So, it's like insurance that way.
I love Warren Buffet, too. But he does not look at the market and simply buy into the market 'dips', as was inferred by the person I responded to yesterday. he's knows far better than to do that, because many of us realize that sometimes, these 'dips' are trying to tell us something, and buying into them, based on some sort of broker-advocated 'dogma' can be fata