Obscure?

link: http://www.thesanitycheck.com/Default.aspx?tabid=56&EntryID=584

Location: Blogs Bob O'Brien's Sanity Check Blog

Posted by: bobo
3/12/2007 10:31 PM
UPDATE - I've had a lot of folks email me and ask what they can do to help in this battle against international cartels of predatory miscreants, aided by our own Wall Street bankers.
How about demanding hearings and the inevitable special prosecutor? As I have been arguing for now for two years?
Check out this sample letter, posted on Investorvillage.com - if everyone takes a few seconds out and sends this to the addressees, they will be deluged with demands for action.
And that will make you part of the solution, rather than food for the machine.
It's a start.
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Everyone, go watch the Bloomberg TV special on NSS.
You can see it at YouTube, or download it to your desktop from a mirror site here. I would recommend Youtube, where you should also take out a moment and rate it, and make it a favorite rating for yourself. That gets it higher in the visibility chain, which in turn then gets more folks interested in watching it, enhancing the viral spread of the message.
Folks, this is a landmark program, as it tells most of the story in a manner that the average person can understand.
What's particularly sad about this is that the DTCC and the brokers were all offered the opportunity to testify...er...speak, and defend themselves, and reassure everyone as to how small a problem this is...and they wouldn't do it. Wouldn't say a word. Nobody wants to talk. The best they could get is Chanos, refusing to look into the camera, claiming "he" has never naked shorted, and telling everyone that it isn't a big deal. Of course, he doesn't actually know how big a deal it is, anymore than you or I do, but he is just sure it can't be all that bad. Even the DTCC claims it doesn't know how big the problem is, but Chanos does.
I suppose he hasn't looked at the FOIA data or the SIA's spreadsheet showing a deci-billion dollar problem, or more. No, why discuss the actual naked short selling when you can blame the victim company, ignore the hard data, and proclaim it all as a "Red Herring?" That seems to be the prevailing way Wall Street handles the issue. First, there's no problem. Then, it's a non-issue if there is a problem. Then, it isn't me doing it, it's someone else. Classic lying guys lying about their lies. Really good stuff. No explanation is furnished explaining all the data showing a massive counterfeiting problem - it's all those bad CEOs trying to take the heat off their failure to perform.
I'm not sure whether we should call that doing a Chanos, or pulling a Nocera. I'm open to suggestions.
UPDATE 3/14/07: Goldman was just sanctioned for mismarking short sales as long sales. They were caught processing trades for 2 customers who were mislabelling their sales as long in order to be able to sell stocks that had short restrictions. Lehman says it is the customers' fault. Does anyone really believe this only happened with two customers? Please .
So we have the prime brokers blaming the customers, and the customers like Chanos blaming the brokers. How can that be? It's almost as though both are completely complicit and looking for scapegoats once they've stolen all the money they can carry. Kind of amusing how the crooks point at each other the second light shines on them..."It wasn't me. It was them. I'm not bad. They are." Just insert your favorite scapegoat...
Now back to the original blog: There are some great moments in the program. The comparison to "The Producers" is really funny.
Byrne, from the show: "Maybe if you ran a better liquor store, they would stop robbing it." Classic.
The show tells the story in the best terms I've ever seen.
Put simply, brokers are taking buyers' money, and then refusing to deliver the shares they were paid for, preferring to pocket the money and incur no expense for buying and delivering the shares.
Because the system treats electronic IOUs generated by the brokers the same as legitimate shares, they can do this for years in targeted stocks, and nothing will stop them. It is stealing, and fraud. Simple.
My only problem with the special is that it didn't explain that the $6 billion per day of fails to deliver and receive were AFTER CNS netting nets 96% of the trades in the system - sells against shares held long. That means that the $6 billion per day is after all the shares the brokers own on behalf of their clients are netted against sales for the day, and only after 100% of those shares are used up, then, the first delivery failure is registered. So on a typical day, where $100 billion of stock is traded, after all the netting takes care of $96 billion of sales with no delivery as well as genuine sales with delivery, there is still a cumulative $6 billion undelivered. It is estimated that about $2 billion is new fails for the day, with $1 billion of that being handled by the DTCC's stock borrow program, which is really a stock lending program. So CNS netting "handles" 96% of all trades, effectively masking or hiding the number of fails, and of the 4% remaining un-handled, half fail. 50%. You are reading this correctly. One half of all un-netted trades fail per day. Which would lead a thinking person to believe that as many as one half of all trades fail per day, but CNS netting masks 96% of those by offsetting the undelivered trades with shares held long for other customers, "netting" the long shares (+ signs) against the sales - REGARDLESS OF DELIVERY - (- signs), and "handling" 96% of the trades in that way. But even after all shares held long are used up to offset the minuses, there are still FTDs.
And the SIA's own spreadsheet tells the whole story of the number before netting masks it - $63 billion on the last day of Q2, 2006. Which is about 50% of $120 billion, and right in line with the above equation. You can view that spreadsheet on this site's home page, where it is linked, in red.
That is massively scary, and a completely different picture than the one Wall Street tries to spin. They figure that netting is so obscure nobody will ever understand it, so they can come out with a benign number that sounds small, and claim it is technically true.
Other than that, this is the biggest thing to hit the NSS story for years. It is what Dateline should have been.
Send it to every paper and elected official on the planet. Every radio talk show. Every blog.
No wonder Nocera ran a hatchet job on Byrne over the weekend. Wall Street heard this was coming. So they had to take one last swipe at trying to smear him, as well as prominent folks in the NSS battle.
It didn't work.
Send this to everyone. It's time.