Investigative Reporter Mark Mitchell responded today to a Wall
Street Journal article uncovering the fact that short selling
played a major role in the current global crisis:
Journalists who write about short selling hedge funds fall into
three categories.
The first category is comprised of a very small number of
journalists who have deliberately whitewashed the dubious
activities of their short selling sources. These
journalists–such as Herb Greenberg (whose stories for
MarketWatch.com invariably served the interests of the same short
sellers who are now paying Herb’s salary), and former
BusinessWeek reporter Gary Weiss (who works with a cast of
convicted criminals and flimflammers to smear the reputations of
people who are critical of short selling crimes)–are, at some
level, corrupt.
The second, larger category is comprised of journalists who
gorge on the junk food fed to them by the hedge fund lobby,
subsequently farting out the predictable fog – “short
sellers are vital to the markets;” “short sellers are
vital media sources;” “short sellers were right about
company X because company X is now bankrupt.” To which you
say, yeah, but some of those short sellers commit crimes that
destroy companies – and the journalists say, yeah, that might
be, but it’s hard to prove a crime, deadlines loom, and sloth
has its appeal, so “fart, fart, fart.”
The third category is comprised of the small but growing number
of journalists who have actually spent some time chewing on the
data and the evidence – and are now digesting this nourishing
roughage into something a bit more solid – something like
stories that show that short selling shenanigans just might have
contributed to the near total collapse of the American financial
system.
As evidence that the latter sort of journalists do, indeed,
exist, consider that no less than five Wall Street Journal
reporters spent several weeks working together on an investigative
story about how short selling might have helped fuel the panic that
nearly took down Morgan Stanley in September.
The result, published yesterday, revealed that:
- Hedge fund managers Dan Loeb and Israel Englander pulled their
money out of Morgan after taking large short positions in the
company. Jim Chanos, head of the short seller lobby, also yanked
his money, though he claims not to have been short Morgan. (The
unstated assumption is that the shorts might have worked together
– simultaneously pulling their billions in order to create
the illusion of a run on the bank.)
- At the same time that the hedge funds were yanking their money
and taking big short positions, somebody bombarded the market with
false rumors about Morgan losing access to credit. New York
Attorney General Andrew Cuomo and the Securities and Exchange
Commission are looking into whether short sellers were responsible
for these rumors.
- While the false rumors circulated, the price of Morgan Stanley
credit default swaps soared. The New York AG and the SEC are
examining “whether traders bought swaps at high prices to
spark fear about Morgan’s stability in order to profit on
other trading positions [short sales], and whether trading involved
bogus price quotes and sham trades.”
- This “pattern of trading, which previously had battered
securities firms Bear Stearns Cos. and Lehman, now is dogging
Citigroup, whose stock fell 60% last week to a 16-year low.”
(The unstated assumption, contrary to the Journal’s previous
oft-stated assumption, is that it is not just “bad
management” that causes stock prices to lose half their value
in a few days.)
The Journal might have done one better by noting that Loeb,
Englander, and Chanos are part of a tight clique of hedge fund
managers who tend to attack the same companies.
The Journal might also have pointed out that when these hedge
fund managers attack, they often “share ideas” (ie.,
spout the same false information and distorted analysis about their
victim companies, sometimes anonymously on Internet message
boards).
And it would have been worth noting that the companies targeted
by these hedge fund managers are invariably victimized by naked
short selling. That is, whenever these particular hedge funds are
swarming, somebody is selling a lot of stock that they do not
possess, and therefore failing to deliver the stock on time.
The SEC’s “failure to deliver” data for
September will become public in a couple of weeks. If the data
shows, as I suspect it will, that Morgan Stanley was targeted by
illegal naked short selling, then maybe The Wall Street Journal
will do a follow-up report.
Before that, The Journal’s reporters could take a look at
the data through June, which shows quite clearly that in addition
to the “pattern of trading” cited in yesterday’s
story, Bear Stearns was buried under waves of naked short selling,
beginning in January. On the day that CNBC’s David Faber
reported the false news (fed to him by a hedge fund “I have
known for twenty years”) that Goldman Sachs had cut off
Bear’s access to credit, more than a million shares of Bear
Stearns were sold naked, failing to be delivered within the
allotted three days. Most of those shares – and another 10
million Bear Stearns shares sold short in March – have, to
this day, never been delivered.
Then there is the data that shows that, market wide,
“failures to deliver” doubled between 2007 and 2008,
and peaked at 2 billion shares at the end of June – just
before the SEC issued its July 15 “emergency order”
protecting 19 big financial institutions from naked short
selling.
While the “emergency order” was in place, stock
prices increased dramatically. Within weeks after the
“emergency order” was lifted, a number of those 19
protected companies – including Lehman Brothers, Merrill
Lynch, Morgan Stanley, Citigroup, Fannie Mae, and Freddie Mac
– saw their stocks plunge to crisis levels, and were then
vaporized, nationalized, or bailed out.
The data through June shows that nearly all of those companies
had been hit with massive levels of naked short selling, with
between one million and 12 million shares failing to deliver in
multiple spurts of several days. Washington Mutual, IndyMac, and a
few dozen other now-defunct financial companies were clobbered with
even higher levels of fails — day after day for weeks on
end. Many non-financial companies have been hit even
harder.
In fact, the available data understates the problem.
There could be ten, 100, or many more times as
many failures to deliver, but we cannot know for sure because that
black-box Wall Street outfit called the Depository Trust and
Clearing Corporation refuses to release more complete data. It also
refuses to reveal which criminal hedge funds are engaged in naked
short selling.
Meanwhile, the DTTC vehemently denies that naked short selling
is a problem and attacks journalists, critics, and former DTTC
employees who say otherwise – all part of a disinformation
campaign orchestrated with help from the corrupt former
BusinessWeek reporter Gary Weiss and his criminal accomplices, some
of whom are paid by Dan Loeb, the hedge fund manager who features
in yesterday’s Journal story.
Gary has gone so far as to hijack Wikipedia in cahoots with a
Wikipedia administrator and former MI6 agent named Linda Mack.
Anybody is supposed to be able to edit the online encyclopedia, but
until recently only Gary and Linda Mack could touch the entry on
“naked short selling” (which of course said there is no
such crime). Gary flat out denies working with the DTCC and says
that if somebody saw him go into the DTTC’s office, it was to
“use an ATM machine.” He also continues to flat-out
deny that he has ever edited Wikipedia, even though he has been
exposed by The Register , a respected British
publication.
After The Wall Street Journal figures out why the DTTC is
protecting criminals, it could investigate why the SEC has never
prosecuted a hedge fund for naked short selling, and why the Wall
Street cronies who run the commission quashed at least two major
investigations into suspected short selling crimes.
One of those investigations (targeting research firm Gradient
Analytics, but meant to be the beginning of larger inquiry into the
activities of Gradient’s short selling clients, was shut down
under pressure from the aforementioned corrupt journalists, several
of whom (Herb Greenberg, Jim Cramer, and Carol Remond of Dow Jones
Newswires) had received government subpoenas because of their
unusually close ties to Gradient and the aforementioned clique of
short sellers.
Another investigation (into suspected naked short selling that
SEC whistleblower Gary Aguirre described in a letter to the U.S.
Congress as having the potential to “seriously injure the
financial markets”) was shut down under pressure from Morgan
Stanley CEO John Mack, who apparently had “juice” at
the SEC. (For details see the U.S.
Senate’s 700 page report on the matter. When the
Senate refers to “market manipulation,” it is
describing naked short selling.)
In yesterday’s story, The Journal notes
that “sales of credit-default swaps were a profit gold
mine for Wall Street. But, ironically, during those tumultuous few
days in mid-September, the swaps market turned on Morgan Stanley
like a financial Frankenstein.”
The Journal should have noted that naked short selling, too, was
a gold mine for Morgan Stanley, and that given Mack’s role in
shutting down the SEC investigation, it is kind of ironic that the
Morgan CEO later found himself complaining to the SEC that short
sellers had illegally manipulated his stock to single digits.
Indeed, this was a stunning admission that a crime long denied by
Wall Street does, in fact, occur.
The Journal could also investigate why the aforementioned
corrupt journalists smeared Gary Aguirre, circulating the story
(completely false, according to the U.S. Senate and the SEC
inspector general, and all available evidence) that the SEC
whistleblower had been fired for poor performance. There is also
the question as to why these journalists, most of whom have yet to
publish a story that was not sourced from the aforementioned clique
of hedge funds, went to such lengths to smear other critics of
naked short selling – everybody from Deep
Capturereporter Patrick Byrne to the blogger who calls himself the
Easter Bunny. .
The Journal might also be interested to know that one of those
short selling hedge funds, Kingsford Capital (managed by corrupt
journalist Herb Greenberg’s former co-editor at
TheStreet.com) announced that it would begin paying my salary at
the Columbia Journalism Review (where I was then an editor), just
before CJR was going to publish a story about naked short sellers
(including Kingsford Capital) and captured journalists (including
Herb). Indeed, three of the four journalists who have begun work on
major stories about naked short selling have ended up shelving or
watering down their stories, not long before receiving funding or
salaries from this same clique of hedge funds (more on this in a
coming dispatch).
Perhaps a shifty hedge fund will offer jobs to the
Journal’s hard-working reporters, too.
Either that, or they will get smeared as “conspiracy
theorists” or “knuckleheads who don’t understand
markets and were fired from their previous jobs.” Maybe the
hard-working reporters will give up.
Or maybe they’ll keep chewing on the facts and publish a
story about how captured regulators, corrupt journalists, a
colorful cast of convicted criminals, the black box DTTC, and the
aforementioned clique of hedge funds all sought to cover-up a crime
that is now implicated in the greatest market cataclysm since
1929.
Now, that would be some good shit.