-- Posted Wednesday, 30 July 2008 | Digg This Article
| Source: GoldSeek.com
I got a real laugh out of the stupidity of the new witch hunt to make "naked" short sellers the villains of the piece, how these speculators are manipulating the markets to everyone's disadvantage except their own, and how if it weren't for these nasty people, then everything would be fine and we would all be romping blissfully around in a wonderful paradise on Earth that puts fabled Utopia to shame.
In case you were scratching your head wondering, "What's a short sale?", it is nothing more than the other way to make money by ruthlessly buying and selling financial assets, but instead of the tried-and-true "buying low, then selling high" of story and song, you make a profit by "selling high, then buying low"! Either way, if things work out for you, you make a profit! Simple!
The problem in "going short" is obvious, as you are thinking, "How do you sell something that you don't own? Is this another of your Sleazy Mogambo Tricks (SMT) to take my money, like that 'honor-system coffee fund' rip-off scam that you set up in the employee lounge last year?"
Well, the fact is that you are right; you can't sell something that you don't own. It is against the law to sell securities that you don't own, and in fact don't even exist, because it would be a fraud on the buyer. And since you cannot legally commit a fraud, you cannot legally sell something you don't own to an unwitting buyer.
As far as I can tell, the only two people who know this are Alan Abelson of Barron's and me.
And to prove it, Mr. Abelson writes, "Naked short selling…is already illegal", and which means to me that the SEC was just another dreary incompetent bunch of go-along-to-get-along empty headed empty suits in on the take, which is, depressingly, exactly what you always get at the end of long economic booms generated by huge increases in money and credit, as the general level of fraud and corruption reaches a mighty crescendo.
Sort of like how my Mogambo Scream Of Fear And Outrage (MSOFAO) is now likewise at a crescendo as I lean precariously from the window and howl a death-knell "Ah-ooooOOOOOooo!" into the dark night, which I do as a courtesy to my ungrateful neighbors, as I graciously let them know that their money, and everything connected with it, is freaking doomed because the Federal Reserve has created so much money and credit, and for so long, that there is no other possible solution to such profound idiocy!
So how does an untrustworthy thieving scumbag like me (and like most people, I am sorry to say) go short in the market if people are too smart to loan us the securities? And who loans their shares to short sellers, some of whom, but not all of whom, are people like me?
Well, everybody that has a brokerage account, for one! If you look at the contract you signed when you opened the account at the brokerage that clears your trades, you will notice that you have given them permission to borrow any security you own, which they need to provide to short sellers!
I enjoy blaming Bill Clinton for the stupidity that now, instead of having to actually borrow the shares, brokers have only needed to show that they have made an "effort" to find shares to borrow that the short sellers have already dumped on the market, or that they have a "reasonable expectation" of being able to get their hands on shares! Hahaha! Too rich!
But since the SEC was deliberately not enforcing the requirement to back up a short position with borrowed shares, and now that this lack of restraint has now grown to such preposterous proportions, how could you be surprised?
What truly WOULD have been surprising is if it didn't happen, as if anyone could possibly resist the temptation to counterfeit securities, and then dump them onto the market after taking some off-setting hedge positions! Free money! Hahaha! Thanks, Bill Clinton, and thanks SEC, and thanks Congress, you sleazy dirtbags!
Lest I be remiss in my contempt for Bill Clinton, he is the same bankrupting moron who eliminated the Glass-Steagle Act of 1933 that prevented the banks from acting like the greedy, market-distorting, ruinous scumbags that they naturally are, and have subsequently proved themselves to be, all over again.
Chris Cox, head of the SEC and supposed watchdog to make sure this kind of corrupt crap does happen by enforcing the securities laws, is all atwitter about the "abusive short selling" by his buddies who are busily looting us through their machinations at financial firms, and he told Congress that he was going to take bold action! From now on, he sternly declared, the SEC will forbid the practice of "naked shorting," which is, I assume, an additional sanction, since it is already against the law.
The funny part about naked short selling, namely selling something you do not own or even have possession of, is that it so enormously rampant every freaking where! The world's supply of money is somewhere around $60 trillion, but the derivatives market alone runs to about $1,250 trillion! $1.25 quadrillion, 20 times as big as all the money in the world!
And don't get me started at what in the hell is going on at the commodity exchanges, mostly because I have no idea what in the hell I am talking about, but it seems that the commodity exchanges routinely allow their little buddies to sell fictitious commodities, like "paper" silver, for example, until we are talking about a short position in silver that is (according to Theodore Butler) "an amount of silver equal to all the known silver bullion in the world." Talk about what is effectively a huge naked short position!
I bring this up because even now, the one-month lease rate for gold is zero, and is staying at zero! Borrow gold at an interest rate of zero! I gotta tell ya that the Federal Reserve loaning out gold for free makes me angry as hell, because it drives down the price of gold as all this free gold gets borrowed and dumped on the market, upsetting the demand/ supply balance, making a nice piece of change for anybody who is already short gold, who are, I assume, mostly the guys who are dumping the gold in the first place, mostly because that is the kind of suspicious, paranoid and distrustful kind of cynic I am after all the years of hearing how people get screwed by these corrupt weenies.
The point is that naked short selling is pandemic everywhere you look, and such a huge constellation of short positions means Big Trouble Ahead (BTA). And BTA usually means It's Time To Accumulate Gold And Silver With Feverish Abandon (ITTAGASWFA) because you are scared out of your freaking mind.
And if you aren't, you soon will be.
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Editor's Note: Richard Daughty is general partner and COO for Smith Consultant Group, serving the financial and medical communities, and the editor of The Mogambo Guru economic newsletter - an avocational exercise to heap disrespect on those who desperately deserve it.
The Mogambo Guru is quoted frequently in Barron's, The Daily Reckoning and other fine publications. Click here to visit the Mogambo archive page.
-- Posted Wednesday, 30 July 2008 | Digg This Article | Source: GoldSeek.com
