In the past few weeks we've been hearing that the poor ole banks are falling on hard times. Back in 1999 the House and Senate had voted 450-64 to remove the Depression Era Glass-Steagall prohibition against banks speculating in high risk securities. Clinton was all for it, too. A few years back the banks and mortgage brokers had been getting poor folk to sign up for special mortgages when they didn't qualify for the usual kind. These mortgages had undisclosed fines and penalties, points and higher interest rates that made their costs balloon out of control. Five years ago I was warning about the predatory lending practices of the mortgage brokers and the banks, and I was showing people how to use the consumer protection statutes. Mortgages that I was seeing had an average of about 20 violations of the Truth in Lending Act The Feds didn't like that information made available on the Internet so the Office of the Comptroller of the Currency alleged that my website was running a mortgage elimination scam. Eliot Spitzer wrote in the Washington Post that the 50 state governors and attorneys general had been trying to stop predatory lending, too, but the Feds forced them to stop. They never tried to get me to stop, but a lot of people probably thought the government was right. Intimidation by the Feds works again and again.
So the banks took these rip-off mortgages, called them "subprime", bundled them together and sold them on the derivatives market... .and then kept selling them, rebundling them, selling them around the world, making a profit at every turn. Until only a few weeks ago, we were being told that we were not in a depression or even a recession. Then some of those funny mortgages started to fail and things started to get very interesting. Suddenly the leaders started talking nervously about a bailout or the sky might fall. Bankers began demanding socialized medicine for their sick institutions. They had spent a lot of money to get the legislation passed so they could play in this sand box and when they'd run out of sand they want mommy and daddy to fill it for them again.
Still, there's more to the current "financial emergency" than subprime mortgages and escalating risk in the derivatives market. Securities Exchange Commission watchdogs of these big brats have been very lenient and indulgent over the years. Naked short selling played a big part in the cause of the last Great Depression. Naked short selling is a bet that the stock will diminish in value, but unlike short selling the naked short seller doesn't deliver the stock that was promised when the short sale was transacted. It's an incomplete transaction, a breach of contract. The result is a "phantom stock" not too different from counterfeit money and with much the same result. According to some investigators it could cost over one trillion dollars to clean up the phantom stocks that are in the system.
Even though the SEC has admitted that phantom stock can collapse the financial system, it has not moved to stop the sale of phantom stock and naked short selling. They have only placed affected stocks on a list so that investors can see who is being victimized... .and the stock falls faster and farther. A large portion of the stock in these 300 companies is bogus. It might show up on a computer that you own it, but you really don't. On September 17, the SEC declared that it was serious about enforcing its regulations, but they have been warned and informed about the practice for years and no investigations were pursued.
More than $1.5 quadrillion in stock trades is processed every year through the Depository Trust and Clearing Corporation (DTCC), headquartered in New York City, .A very difficult organization to investigate, the DTCC is owned by its users and it's not transparent to the SEC. Every short sale is processed through it and therefore the DTCC would know which brokers have hedging clients selling stock but not delivering. The government knows where the counterfeiters work but never bothers to stop them.
You probably have not heard much of naked short selling or phantom stocks because influential people in the media have been pooh-poohing the complaints of CEOs and investors alike. Money gurus such as Jim Cramer, Herb Greenberg, Larry Kudlow, Carol Remond, Karen Richardson, Maria Bartiromo, Joe Nocera, Bethany McLean, and Jesse Eisinger are part of the problem. They can promote a company so that its stock peaks and then trash it so that it plunges. It's a very sophisticated sting: first the target company gets glowing publicity from one or more money gurus in the media. A corrupt law firm such as Millberg Weiss tells its clients to purchase some of the stock so that they can later be named as plaintiffs in a class-action suit against the company. A corrupt hedge fund broker such as David Rocker, John Fiero or Amr Elgindy takes a short position on the stock by borrowing from an investor who owns the stock. The broker then sells the stock and waits for its inevitable fall in price. Fraudulent "research" such as that from Gradient alleges problems within the company and is revealed on one or more of the mainstream money shows. For weeks the money gurus allege wrongdoing at the company as the value of the stock drops. The SEC places the company on the list of companies affected by phantom stock, driving the value of the stock still lower. The SEC might even begin an investigation of the company with even greater effect. The shyster lawyer files suit against the company for defrauding his clients and the stock continues to plummet. A stock position opens on foreign exchanges against the wishes of the company because this makes it even easier to flood the market with phantom stock. The short sale is repaid with phantom stock diluting the value of the company's real stock. If the company can be driven out of business, that is the most lucrative outcome for the naked short sale. It's devastating to the investors, employees, related businesses and to the economy as a whole.
So now Congress and Bush are trying to scam you and me by telling us that these shenanigans must be taken upon OUR shoulders. If they don't investigate and prosecute the perpetrators, the criminals will be coming back for more... .and more... .
You best let them know how you feel about that. Right away.
See the details at:Hedge Funds, Naked Short Selling, Phantom Stocks and Stock Market Collapse