Wednesday, December 27, 2006

Unbridled Corruption & Abuse of Power - Naked Shorting by Louis Evan Palmer

The bedrock of society is trust and this requirement especially extends into the financial realm. Yet, it is precisely there where it often fails because the tentacles of greed, desire & fear squeeze it out of the unsteady converts to honesty. Their religion is "self and what can be gotten away with" and they rapidly crumble under any ethical pressure.

With rampant corruption, mostly hidden or obfuscated, and its attendant abuse of power, it's difficult to choose a starting point so letting chance play its part, we settle on a story identified by "Project Censored" and listed as #18 in the "Top 25 Censored Stories of 2006".

It appears to be a variation on the theme of the rich get richer. It's called "Naked Shorting".

Naked shorting is a shell game - you sell something you don't have - in this case, stocks; in fact, you don't even sell them, you borrow them; actually, you don't even do that - you pretend that you either have or will them; so maybe we can call it an IOU on a loan on a stock.

In the world of MBAs-turned-conmen, these complex schemes are ideal because you can baffle them and dazzle them and if they want to probe too deeply then you can "Emperor's New Clothes" them - if you don't understand their explanations, it's because you're stupid or ignorant or both. Best keep your mouth shut and let your betters do their thing which in this case, is to rob you blind.

This is a layman's version of "Naked Shorting". The "naked" part refers to the fact that the "short" is not covered which means there is no stock in hand to short. A normal stock purchase involves investing in a company and hoping it does well enough so that you make your money back plus some. Say, as when you buy shares at $1 a share and sell them for $1.50 a share. "Shorting" is the opposite - although you can't actually buy a share in this scenario. You agree to borrow a share for a period of time. In this case, say the stock is trading at $1 a share but you think it will drop, so you agree to borrow the share and return it for $ 0.90 a share in 30 days - you're hoping it falls to $0.80 or lower and then you make $0.10 a share. Because there is no proof that the trader offering the short actually has the stock, there can be a greater number of shares than what a given company has issued. Such a stock can only go down. This then can be used as a means of attacking a company and putting it out of business and stealing its assets - making money all the while.

What is the bottom line?
  1. Hedge funds and large traders & specialized traders get away with grand theft
  2. Small & mid-sized companies, especially those in need of capital, are driven into bankruptcy and/or to the vultures
  3. Small & mid-sized investors are victimized (again)
This is yet another in a long line of techniques for creating credit - one of the guaranteed ways of making (i.e. stealing) a great deal of money. This is always the foundation technique - creating credit. Look for it and everywhere you see it, you will see the mark of thieves and thugs.

Job One for our governments and their agencies - control, transparency & fairness in the creation of credit in all its forms.

Unbridled Corruption & Abuse of Power - Naked Shorting, Louis Evan Palmer, The Way It Can Be,
Copyright Louis Evan Palmer 

He lives in Ontario Canada. His short stories have been published in numerous publications. 


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