Another sensationalist but accurate link

CCCToad on 7/10/2009 at 02:13

I present to you an MSNBC interview of Matt Taibbi, recorded on youtube for your viewing pleasure: (http://www.youtube.com/watch?v=jROtFPhiFGU)

Matt Taibbi, a political columnist with Rolling Stone, has attracted a fair amount of attention for his feud with Goldman Sachs. Basically, he is convinced that "naked Short stop selling" is a huge scam, and (I could be wrong here), but everything that it is a pretty shady practice. Basically, it involves buying shares without the lending securities required by US law, and then immediately selling them.

Rug Burn Junky on 7/10/2009 at 03:27

I'm not even going to bother watching that, but when it comes to financial subjects, Taibbi is a fucking joke. He doesn't even understand the concepts he's covering, and misuses terms left and right. His criticisms really aren't worth discussing because you're usually starting from nonsense.

CCCToad on 7/10/2009 at 15:21

I'm curious to hear more, because most of the rebuttals I've seen to him so far are along the lines of (from goldman) "this man is a conspiracy nut, so everything he says is wrong" without even bothering to mention why he's wrong. I feel a bit ignorant not knowing both sides of the story.

the_grip on 7/10/2009 at 15:44

This subject only came under hot debate when the markets cratered. It had gone on for some time before that. It is an illegal practice to be sure, but when you have firms like GS that dwarf the SEC, what can you do.

The biggest difference now (and a good one IMO) is that brokerages are now more stringent about the number of shares they will lend out short.

Regardless, the stock markets around the globe are highly manipulated in my small view, and it would not surprise me at all to find that the SEC is on the take somewhere. They are very slow to react and cannot keep up with those whom they police.

Really the biggest scam to me is the "pattern day trader" rule... keeps smaller accounts out in order to "protect them from themselves".

I don't know Taibbi from a hole in the wall, but talking heads in the finance world are a dime a dozen. There are very few I listen to with any attention.

Rug Burn Junky on 7/10/2009 at 17:25

That's just it, Taibbi is not a financial pundit. He's a reporter for Rolling Stone who fancies himself a gadfly, and for the past six months or so has been taking on the finance world. But he's so wildly off base on the topics that he has no credibility on the subject.

First of all "Naked" short selling isn't nearly as widespread nor damaging as Taibbi would have you believe. Nor is it necessarily "illegal" - it's regulated under Regulation SHO. It's a bogeyman.

I'm not going to waste my time going through and refuting him point by point because it IS nonsense, and others have already done it.

(http://www.businessinsider.com/matt-taibbi-jumps-down-the-naked-short-selling-rabbit-hole-2009-9)

(http://www.businessinsider.com/john-carney-sorry-matt-taibbi-naked-shorting-didnt-bring-down-lehman-brothers-2009-9)

(http://www.businessinsider.com/john-carney-matt-taibbi-falls-for-naked-short-selling-hoax-2009-10)

(http://meganmcardle.theatlantic.com/archives/2009/09/bear_raiders.php)

(http://business.theatlantic.com/2009/07/matt_taibbi_gets_his_sarah_palin_on.php)

That's just tip of the iceberg.

CCCToad on 7/10/2009 at 17:37

thanks, those links are what I was looking for. Taibbi is sensationalist enough that I suspected he was slightly (or majorly) off base. However, I do think he serves a purpose because he gets people talking about some of the shadier stock trading practices.

So how, in your opinion, would you change regulations on wall street to control insider trading?

Rug Burn Junky on 7/10/2009 at 18:05

Why are you switching subjects?

Understand, "insider trading" is a discrete topic, vastly different from "naked short selling." If you veer wildly from one unrelated topic to another, I can be pretty confident that you entirely lack the sophistication for this conversation to be worth my time.

the_grip on 7/10/2009 at 19:17

RBJ I could be wrong but I was under the assumption that there is "real" naked short selling and then naked short selling that happens just as a matter of practicality (i.e. when millions of shares are traded fast it is potentially impractical to find all the shares to lend out short, etc.). Thus, so long as a firm can show fair intentions or what have you, then they are okay. Is this not the case? (in terms of retail brokerage, this is much more enforced post-hubub from what I can personally tell)

There are rules to govern it to be sure, but supposedly there is this evil form of naked short selling that basically abuses loopholes in the system. I'm sure it was overtrumped just because it was headlined all the time during the sensationalism of last year.

Rug Burn Junky on 7/10/2009 at 20:14

It's a distinction without a difference. They're both "real" naked short selling. It's not naked short selling (short selling without first borrowing, or confirming that you can borrow the securities) that's the problem, it's (1) selling short, (2) with no intent to deliver the securities, (3) in an attempt to manipulate the price.

Part (3) is the problem. Parts (1) & (2) are merely the means. The regulations require that you at least make an honest attempt by proving that you have intent to deliver and showing that you at least have undertaken the due diligence to know that you have the ability to do so. There are times and situations where that's not possible, but that doesn't mean that there's no intent to deliver. So there are exceptions to the rules (particularly in the area of market-making, which fits into your description of practicality).

In the real world, it's only a fraction of a percent of short sales that are undertaken without first confirming availability. Of those it's another fraction that fail to deliver, and of those it's a further fraction that were done with ill intent.

This is a mountain out of a mole hill.

Short sales are part of the price mechanism of the open market, and sometimes that means that it (rightfully) drives prices down, so obviously the corporate officers think this is a bad thing. Tough shit. But because it keeps them in check, they want it eliminated and blow up its importance by focusing on the abuses at the fractional end of the spectrum, instead of the value overall. That's the sensationalist part of the story, and the part that gets picked up by credulous suckers like Taibbi because it fits into the larger plotline he's developing ("Oh god, Goldman is fucking the whole world!"). It's a problem, but one that's being blown out of proportion, and not relevant to the effects that are being attributed to them.

Are there actually abuses? yeah, sure, but they're more likely by a country mile to be manipulating penny stocks than causing our current mess. It's not what brought down Bear Stearns or Lehman.

CCCToad on 8/10/2009 at 01:10

Quote Posted by Rug Burn Junky

And I can be pretty confident that you aren't intelligent enough to catch on to the fact that I'm asking a different question for the hell of it. But these little unnecessary insults, to a non-hostile audience, won't get us anywhere, will they?

Plus, there is a tangential connection: Both are abuses of the stock market.

Let me re-word the question: How would you change regulations in order to reduce insider trading, manipulative short selling, and other abuses of the market?