Matt Taibbi has published a story in Rolling Stone
magazine that nobody should miss. It’s not yet available
on-line, so you’ll have to pick it up at the newsstands, but
here’s a quick summary.
Taibbi writes:
“On Tuesday, March 11th, 2008,
somebody – nobody knows who – made one of the craziest
bets Wall Street has ever seen. The mystery figure spent $1.7
million on a series of options, gambling that shares in the
venerable investment bank Bear Stearns would lose more than half of
their value in nine days or less. It was madness –
“like buying 1.7 million lottery tickets,” according to
one financial analyst.”
Bear’s stock would have to drop by more than half in a
matter of days for the mystery figure to make a profit. And that is
what happened.
As Taibbi explains, “the very next day, March 12, Bear
went into a free fall…Whoever bought those options on March
11th woke up on the morning of March 17th having made 159 times his
money, or roughly $270 million. This trader was either the luckiest
guy in the world, the smartest son of a bitch ever or…Or
what?”
Taibbi speculates (as has Deep Capture) that these
options might have been purchased by somebody who was abusing the
options market maker exemption to engage in illegal naked short
selling. And Taibbi goes beyond speculation to state, as an obvious
fact, that illegal naked short selling helped bring Bear Stearns to
its knees.
Presumably operating under that assumption, the SEC issued more
than 50 subpoenas to Wall Street firms in the wake of Bear’s
collapse, but “it has yet to indentify the mysterious trader
who somehow seemed to know in advance that one of the five largest
investment banks in America was going to completely tank in matter
of days.”
Taibbi continues: “The SEC’s halfhearted oversight
didn’t go unnoticed by the market. Six months after Bear was
eaten by predators, virtually the same scenario repeated itself in
the case of Lehman Brothers – another top-five investment
bank that in September 2008 was vaporized in an obvious case of
[naked short sellers engaging in] market manipulation. From there,
the financial crisis was on, and the global economy went into
full-blow crater mode.”
Taibbi notes that there were many other factors that made the
economy weak. But he says that naked short selling is what pushed
Bear and Lehman over the edge. If it weren’t for naked short
selling – a massive “counterfeiting scheme,” in
Taibbi’s words — those banks would likely have
survived, and we might have avoided an all-out financial
catastrophe.
This cannot be stressed enough. Criminals deliberately destroyed
two of America’s biggest investment banks, precipitating the
greatest financial cataclysm since the Great Depression. And the
government has done absolutely nothing to bring those criminals to
justice. In fact, as Taibbi makes clear in his story and on
his blog, the most
likely culprits are feted by top government officials in closed
door meetings.
I’d call this the biggest financial and political scandal
in the history of this country.
Certainly, it is, as Taibbi writes, “one of the most
blatant cases of stock manipulation in Wall Street history.”
Certainly, it is, as Taibbi writes, “the two biggest murders
in Wall Street history.” And, certainly, it is odd that this
very big story has appeared in Rolling Stone, but has yet to be
covered by a single mainstream news publication.
The Wall Street Journal, The New York
Times, Fortune, BusinessWeek – they have all known about
naked short selling since Deep Capture reporter Patrick Byrne began
hollering about it in 2005. But none of them write about it.
Instead, we find a competent financial journalist, and the only
major story about one the greatest financial crimes of all time,
published in a slightly alternative magazine about music.
I worry for the Republic.
Mark Mitchell is a
reporter for DeepCapture.com. He
previously worked as an editorial page writer for The Wall Street
Journal in Europe, a business correspondent for Time magazine
in Asia, and as an assistant managing editor responsible for the
Columbia Journalism Review’s online critique of business
journalism. He holds an MBA from the Kellogg Graduate School of
Management at Northwestern University. Email:
mitch0033@gmail.com