Monthly Archives: March 2009

Hedge funds laughing all the way to the bank

Short selling hedge funds lit the spark that led to the global economic meltdown

03969001Now they want to help craft the laws Congress will pass to fix our broken regulatory system. That’s insane. Don’t just stand there, do something! … Write or call your Congressperson!

Video is MUST SEE > Hedge Funds and the Global Economic Meltdown from Judd Bagley on Vimeo.

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Stop Naked Shorting!

“This is an outrage!” 

via windowlite (thanks)
This is the first bill this new Senator has introduced.   Great start, Senator!!   Help him out and notify your Senators to support this legislation.

Record Text

FAIRNESS OF FINANCIAL MARKETS — (Senate – March 19, 2009)<p><center><pre>[Page: S. 3536]

ted_kaufmanSen. Edward Kaufman [D-DE]Mr. President, I wish to spend a few minutes talking about action that needs to be taken to restore the credibility of the fairness of the American financial markets.

On Monday, Senators Isakson, Tester, and I introduced S. 605, which directs the Securities and Exchange Commission to write regulations that will deal effectively with abusive short selling.

One of the abusive techniques addressed in the bill is so-called “naked short selling.”Naked short selling is when traders sell shares they don’t own and have no ability to deliver at the time of sale–which dilutes the value of a company’s shares and can drive prices down artificially.

Before the ink on our bill was even dry, we received a profoundly disappointing report from the SEC’s inspector general entitled “Practices Related to Naked Short Selling Complaints and Referrals,” a report detailing the results of an audit on the SEC Division of Enforcement’s policies, procedures and practices for processing complaints about naked short selling.

An astounding 5,000 complaints about abusive short selling were sent to the SEC’s Enforcement Division between January 1, 2007 and June 1, 2008. There could be no mistaking the scale of the potential problem that that number of complaints reflected. Incredibly, a mere 123 complaints were referred for further investigation. Worse, and I quote: “none of the forwarded complaints resulted in enforcement actions …..” five thousand complaints, zero enforcement actions.

Not surprisingly, the SEC inspector general has concluded that the processes for dealing with such complaints need a fundamental overhaul.

Accordingly, the IG made 11 suggestions for improvements. And how did the Enforcement Division respond? It agreed to one of the IG’s recommendations, and declined to move on the rest.

I have been around Washington and the Senate for 36 years, but rarely have I seen an inspector general’s call for action so summarily dismissed.

In its comments to the IG report, the SEC Enforcement Division stated:

there is hardly unanimity in the investment community or the financial media on either the prevalence, or the dangers, of “naked” short selling.<p>

I ask my colleagues: Why would the SEC Enforcement Division want to wait until there is unanimity in the investment community and the financial media to enforce the law? Why would the SEC Enforcement Division in its comments to the IG report want to give a virtual “green light” to continued abusive naked short selling? That is an enforcement division that is not worthy of its name.

In the IG’s response to the Enforcement Division, the IG notes that it is “disappointed” that the Enforcement Division only concurred with one of the 11 recommendations in the audit report. The IG is “particularly concerned” that the Enforcement Division did not concur in its first three recommendations–that the Division should develop a written in-depth triage analysis for naked short selling complaints.

Moreover, the IG notes:

SEC has repeatedly recognized that naked short selling can depress stock prices and have harmful effects on the market. In adopting a naked short selling antifraud rule, Rule 10b-21, in October 2008, the Commission stated, `We have been concerned about “naked” short selling and, in particular, abusive `naked’ short selling, for some time.

Where does this leave us, Mr. President? We have an SEC that is ostensibly concerned about abusive naked short selling, but we have an enforcement division–after receiving literally thousands and thousands of complaints about naked short selling–that has brought no enforcement actions and doesn’t take seriously an IG audit and recommendations.

This is an outrage.

I want to be clear, this was the record from a review of last year’s examination of short selling complaints. This is an issue Mary Schapiro, the new SEC chair, has inherited. She just got to the SEC. But this is a strong indication of the need for real leadership at the SEC. Unless and until that happens, investors will have reason to worry that markets are not yet free of manipulation and abuse.

Of all the challenges confronting our financial system, none is more important than restoring investors’ trust and confidence in the market–the belief that the game isn’t rigged against them. After the disastrous and unprecedented losses of the past year, millions of Americans will refuse to put their resources back into the stock market until they believe the system is once again sound, fair and adequately overseen by the SEC.

In the not-so-distant past, a strategy of long-term buying-and-holding offered a roadmap for comfortable living in retirement and the ability to provide to our children and grandchildren that all-important economic head start in life.

Then, the market valued companies based on economic fundamentals and expected future profits.

Today, too many people view the stock markets as another gambling casino, dominated by volatility and susceptible to predatory short sellers who profit from false rumors and bear raids.

To restore faith in our securities markets, the Securities and Exchange Commission urgently needs to reflect a clear commitment to meaningful change.

It is time to restore the integrity, efficiency and fairness of our securities markets by preventing manipulative short selling, ensuring that the market fairly values the actual shares issued by a company, and outlawing the creation of “phantom shares” by abusive short sellers.

Let’s remember how we got here. The opaque derivatives market allowed some people to play a shell game by leveraging to the hilt and buying and selling synthetic instruments that ultimately crashed in value. The same thing happens through abusive short selling, when traders sell shares they do not own and have no ability to deliver at the time of sale.

It is like making copies of your car’s title, and then selling the title to the car three times, while hoping you can find other cars to deliver if the buyer proceeds.

In some cases, the short interest in a particular company’s stock on a given day has spiked dramatically after false rumors have circulated about the company. The data further show that “fails” to deliver are large and problematic.

That is evidence of manipulation. It distorts the market. It must end now.

Let me be clear: the problem isn’t short selling itself, which can enhance market efficiency and price discovery.

The problem is that, under current rules, short sellers can sell stocks they haven’t actually borrowed in advance of their short sale–and with no uptick rule in place as a circuit breaker. The current standard requires only a “reasonable belief” that a short seller can locate the necessary shares by the delivery date; that is no standard at all and subjects the market to rife abuse.

For the market to flourish again, the SEC must issue rules and enforce them in a way that convinces investors the system is not rigged against them.

One important step the SEC should take now is to reinstate the substance of its former “uptick” rule.

The uptick rule served us well for 70 years until the SEC rescinded it in July 2007. It required short sellers to take a breath and wait for a sale at a higher price before continuing to sell short in declining markets. According to one survey, 85 percent of CEOs, and professionals at NYSE-listed companies favor reinstating it. Fed Chairman Bernanke, bipartisan Members of Congress, and former regulators favor reinstating it. The SEC should do that now.

Restoring the uptick rule is necessary, but not sufficient, to rein in abusive short selling. If the SEC is to alter fundamentally the way stocks trade today, it must also require–and enforce–short sellers possessing at the time of the sale a demonstrable legally enforceable right to deliver the shares–a so-called “pre- borrow” requirement. We simply can’t tolerate a market that permits short sellers to create phantom shares that dilute a company’s value, erode the value of investors’ holdings and manipulate share prices downward.

A recent Bloomberg news report based on SEC data confirmed that so-called “naked” short selling contributed significantly to the demise of Lehman Brothers and Bear Stearns. Those companies took horrendous gambles and their share values had to reflect those serious missteps, but in the absence of “naked” short selling both might nevertheless have survived.

Abusive short selling is gasoline on the fire for distressed stocks and distressed markets. And the knowledge that it is still tolerated rattles small investors and shakes confidence in our markets.

Mr. President, I ask unanimous consent that this story be printed in the Record.

There being no objection, the material was ordered to be printed in the RECORD, as follows:

[From Bloomberg.com, Mar. 19, 2009]

Naked Short Sales Hint Fraud in Bringing Down Lehman (Correct)

(By Gary Matsumoto)

  [  Matsumoto’s story follows here ]

Sen. Edward Kaufman [D-DE]The new SEC leadership has the opportunity to make the SEC a “can do” agency once more. The SEC is scheduled to meet on April 8 to discuss the uptick rule and abusive short selling. The Chair and commissioners should move quickly to adopt the uptick rule and a pre-borrow requirement.

If not, Congress should do its part and direct the SEC to do that quickly.

After yesterday’s IG report and the Enforcement Division’s response to it, I am even more convinced that SEC Chair Schapiro needs to grab the reins quickly at the SEC, and get back to standing up for investor interests to restore confidence in the markets. If the SEC won’t do it, Congress should require them to do it.

Mr. President, I yield the floor.

 (Thank you, Senator Kaufman!)

Perspectives on the AIG bailout and bonuses

First we hear from Wanda Sykes (link > here and below) and then an AIG executive’s wife (Youtube video) weighs in…

http://www.youtube.com/watch?v=KADr2KG5aso

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“It Our Bonus Now, Suckers!”

SEC Uptick Rule article with Just Fix It comments

JustFixIt Comment: For your reading pleasure, we have strategically inserted comments in the article below … in blue bold font. 

Will the SEC restore the Uptick Rule?

Peter Barnes, Senior Washington Correspondent

FOXBusiness March, 13, 2009

The Securities and Exchange Commission announced Friday that it will consider in April proposing a new version of the “uptick rule” as step to help stabilize financial markets, but two confidential SEC studies obtained by FOX Business suggest any new rule may have a limited impact.

uptickAfter the market crash of the Great Depression, the Securities and Exchange Commission created the uptick rule to prevent so-called short sellers from being the only investors to cause a stock price to decline. In a short sale, an investor borrows shares of a stock from a broker, sells the borrowed shares and pockets the proceeds, hoping to buy the shares back at a lower price before returning them to the lender. The difference — if any — is kept as a profit. Thus, a short sale is a bet that a stock will decline in price.

Under the uptick rule, a short sale could be executed only after a trade at aslightly higher price — 12.5 cents or 25 cents, for example.

Supporters of that requirement say it helps check stock manipulation, volatility and steep, rapid price declines — particularly as a result of so-called “bear raids” by short sellers who join together to drive down the stock of a vulnerable company, sometimes by spreading negative rumors about the firm.

But in 2007, the SEC repealed the rule. The agency argued it was outdated and ineffective at exchanges that had converted to decimal trading

(Now you have to ask yourself just who pumped and prodded the SEC into doing a “study” that eventually led to repealing the uptick rule? Seriously… Which group of lobbyists were in to see Chris Cox and the rest of his keystone cops? Jim Chanos? Richard Baker? Other hedge fund lackeys? Prime brokers? Or more likely all of the above)

… in which shares now trade in penny increments. As recently as October, the SEC said short selling played an “important role” in the market “for a variety of reasons, including contributing to efficient price discovery, mitigating market bubbles, increasing market liquidity, promoting capital formation, facilitating hedging and other risk-management activities.”

(Or maybe the “important role” the SEC is describing is to protect the interests of a powerful group of hedge funds, brokers and Wall Street traders … the group that The Daily Show’s Jon Stewart so aptly described …

“People that believe that there are two markets: One that has been sold to us as long-term. Put your money in 401ks. Put your money in pensions and just leave it there. Don’t worry about it. It’s all doing fine. Then, there’s this other market; this real market that is occurring in the back room. Where giant piles of money are going in and out and people are trading them and it’s transactional and it’s fast. But it’s dangerous, it’s ethically dubious and it hurts that long-term market. So what it feels like to us—and I’m talking purely as a layman—it feels like we are capitalizing your adventure by our pension and our hard earned money.

 … Wall Street traders that are doing this for constant profit on a day-to-day for short-term profits. These guys were on a Sherman’s March financed by our 401ks and all the incentives of their companies were for short-term profit. And they burned the f—ing house down with our money and walked away rich as hell.” 

Note: More than 50% of the trades done today are via “quant funds” using algorithmic trading programs that can blitz thousands of trades across the screen in the blink of an eye … sort of like a giant rigged slot machine.)

But with markets dropping sharply in the last year, many investors, along with some lawmakers, have called on the SEC to reinstate the rule in some form — charging, among other things, that its absence has revived “bear raids” on certain stocks, particularly financial stocks, driving down their share prices, possibly below levels warranted by a company’s fundamental operations.

(Gee, do ya think there are such things as contrived “bear raids”?  I’m sure any prospective profiteers would think twice about doing something morally corrupt and often illegal. After all, the SEC might come after them. Ooohh! I’m scared of the SEC … They found Madoff didn’t they? Oh that’s right, he confessed)

“I’ve been in this market for more than 50 years now. I’ve never seen stocks that go up and down — but mainly down — like they have” recently, said Sen. Ted Kaufman, (D-Del.). “The bank stocks selling at the rates they’re selling — you’ve got to believe part of this is bear raids.”

The SEC said it will formally consider whether to propose a “short sale price test” at an opening meeting on April 8. In a price test, a stock would have to rise a bit in price — three cents or five cents a share, for example — before an investor could sell it short. 

In her Senate confirmation hearings in January, SEC Chairman Mary Schapiro pledged to review the rule.
 But in one confidential SEC study written in December by the SEC’s Office of Economic Analysis

(Guess they borrowed a few quant geeks from Chanos’ hedge fund to help with the SEC study?)

researchers using simulations found that a price test would be more effective “during periods with little volatility…counter to the intent of such a rule.” 

A second, related SEC study suggested that restrictions on short selling might not have a major impact in preventing significant declines in a stock.

(More brilliant work by the “borrowed” math geniuses)

That study examined the impact of short selling without any restrictions for periods of “extreme” returns — big moves up or down — for a stock. In “extreme” declines, the report suggested that short sales are too small a portion of total sales of a stock during a decline to factor heavily in its drop.

“Our results are inconsistent with the notion that, on a regular basis, episodes of extreme negative returns are the result of short selling activity,” said the report, which examined actual short selling for 13 days in September 2008. It noted that “the average price aggressiveness of sellers who own the stock is higher than what is observed for short sellers.” Translation: stockholders dumping a stock appeared to be a bigger reason for a price decline than short selling.

(Look … an arsonist needs an accelerant to ensure the building will engulf in flames … short sellers spread gasoline and light the match… yet the primary fuel for the blaze comes from the “scared out of their wits” longs … I blame the arsonist and his accelerant (no uptick required) for the gutted building … NOT the longs who capitulated … morons!)

But the findings found certain price tests effective in slowing and reducing short sales in some circumstances. In computer simulations of stock trades, one of the studies found:

  • A price test would be “more restrictive” for lower priced stocks and more active stocks.
  • A price test “would be less restrictive on short-sale orders during periods of large positive returns and large negative returns, though the restrictions are greater in rapidly declining markets compared to rapidly advancing markets.”

Researchers also found that “even moderate changes in bid increments can have a big impact” on limiting short sales. Short selling was “deeply constrained” in simulations of actively traded stocks even with a small uptick, such as three cents, because such stocks were traded in narrow spreads between buyer’s bids and seller’s asking prices.

For example, for actively traded lower priced stocks, an uptick requirement of three cents a share to execute a short sale would force short sellers to place orders at three cents a share above the last trade “99% of the time…resulting in lower execution rates and longer time to execution.” In periods of “moderate” volatility, less than 20% of the short-sale orders were executed in the SEC simulation.

The research also suggests that bigger upticks — such as five cents or 10 cents a share — could be more effective at curbing short selling. In the simulation with a penny increment, investors would be able to execute about 60% of their short-sale orders.

“These statistics suggest that, for practical purposes, high bid increments, such as five or 10 cents, might be equivalent to a ban on short selling in some stocks, especially during periods when prices are not changing rapidly,” the study said.
Other studies — government and private — on the impact of the uptick rule have been conflicting.

(You guys could have saved yourselves a whole lot of time, trouble and money … just exhume Joe Kennedy and he can explain the whole game … Enough with the studies already … Implement a new rule! Just fix it!)

Rep. Brad Sherman (D-Calif.) is one of 27 members of the House Financial Services Committee to sign a letter to the SEC Wednesday urging the agency to approve a new version of the rule. He said he had not reviewed research on the issue and deferred to the SEC on it.

But he said, “You’ve got to ask the question, ‘Why not restore the uptick rule?’…It may be effective in some circumstances. We have a strong national interest in stabilizing the markets, particularly for financial institution stocks, and this is something that the government can do at no cost to the taxpayers and no increase in the national debt.”

Sen. Kaufman believes a new rule would help “keep volatility down,” prevent “bear raids” on vulnerable stocks by “predators” and help restore investor confidence in the markets.

”We can come up with an uptick rule,” he said. “I’m not arguing about whether it’s a tenth of a cent or whether it’s a quarter or whatever else it is. I’m just saying we can put the software in, in a new digital market. It’s just the will to do it and the decision to do it.”

An SEC spokesman called each study “a preliminary analysis based on data available at the time” and said it “won’t necessarily be the final view” on the issue. The studies were ordered by former SEC Chairman Christopher Cox, after the agency temporarily banned short selling in 19 financial stocks for about a month last summer. Cox was trying – but failed — to convince his fellow commissioners to approve a new version of the uptick rule.

(You’ve got to be kidding me?!!!  As Rome was going up in flames there were actually SEC Commissioners voting against restoration of an uptick rule? Were they shorting financials in their own accounts? Which A—hole Commissioners voted no? … I want names!)

“Despite the difficulty in finding common ground among the commissioners and the exchanges on this important issue, there is unanimity of opinion among the commission and the SEC’s professional staff that the stated aim of the rule — to discourage manipulative conduct — remains an important regulatory objective,” Cox said in the letter to a member of Congress who supported reinstating the uptick rule.

(That’s nice “spin” Cox.  Sorta sounds like this; “We have great sympathy that your house burned down, but according to the terms of your policy, we have to deny your claim … Luck to ya”)

Douglas Kass, general partner and investment manager of Seabreeze Partners Short LP and Seabreeze Partners Long/Short LP, sells stocks short as part of his investment strategy. He called the uptick rule “antiquated,” but said that so-called “quantitative funds,” which use computer formulas to trade, benefited from the absence of the rule.

“They short stocks that are relatively weak and exaggerate their moves by pressing them on the short side, serving to force long holders that lack conviction to sell — so it tends to make a bad market miserable!” Kass said in an email. 

He said he would “most definitely” welcome a price test — of a penny a share, which he would “not really” affect his trading strategies. “Mandating a specific five or 10 cents increase in stocks to qualify as uptick wouldn’t be agreed to by anyone, in my view,” he said.picture-13

(Well Doug, “the enemy of my enemy is my friend” … so today you are my friend … but it’s a tenuous alliance as you can “talk your book” with the best of ‘em. And right now it looks like you’ve gone net long. Good on you! But come on Doug, we can do much better than a miserly penny uptick. How about we use a tiered uptick starting with a penny for under $10 per share stocks and then move up from there? [See example above])

The securities industry is taking a “wait and see” approach on a reinstatement of an uptick rule by the SEC. But Travis Larson, a spokesman for the industry’s principal trade group, the Securities Industry and Financial Markets Association, said implementing the rule now — across multiple exchanges around the world, in digital time and trading — could require stock exchanges to make large investments in new technology and software, a “massive expense” that could be passed on to investors.

(Hey Travis, installing an airbag in a car costs a few bucks too … but I can now buy 100 shares each of BAC, C, GM, F, LEH, BS for less than the cost of a new airbag install! … You catch my drift?)

“Today, finding that uptick and matching that uptick becomes a technological implementation nightmare,” he said.

READ Analysis of Short Sale Price Test, Uptick Rule

Jon Stewart versus Jim Cramer (CNBC) Smackdown

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JustFixIt comment: If you haven’t seen it yet, this March 12, 2009 > Jon Stewart interview with CNBC’s Jim Cramer was funny, provocative, deadly serious and watched by millions on Wall Street and Main Street USA.

This “Stewart verses Cramer (CNBC)” interview focused on the media’s failures in coverage of the turmoil in our financial markets, including Cramer’s (CNBC’s) failure to investigate the shadow markets and role of hedge funds and other institutional gamesters who employ criminal rumor mongering and other market manipulations tactics, all of which are done right under the noses of the keystone cops SEC.

Thank you Jon Stewart! Your interview was compelling and put a white hot spotlight where it needed to be focused. 

Stewart vs. Cramer (CNBC) Part 2 > MUST SEE TV

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Smackdown >Prelude

TRANSCRIPT:

Jon Stewart: How the hell did we end up here, Mr. Cramer? What happened? 

Jim Cramer: I don’t know. I don’t know. Big fan of the show. Who’s never said that? 
JS: Well, many people. Let me just explain to you very quickly one thing that is somewhat misinterpreted. This was not directed at you, per say. I just want you to know that. We threw some banana cream pies at CNBC. Obviously, you got some schmutz on your jacket from it. Took exception. 
JC: I think that everyone could come under criticism from it. I mean, we all should have seen it more. I mean, admittedly this is a terrible one. Everyone got it wrong. I got a lot of things wrong because I think it was kind of one in a million shot. But I don’t think anyone should be spared in this environment. 
JS: So, then, if I may, why were you mad at us? 
–Audience laughs– 
JC: No. 
JS: Because I was under the impression that you thought we were being unfair. 
JC: No, you have my friend Joe Nocera on and Joe called me and said, ‘Jim, do I need to apologize to you?’ and I said, No. We’re fair game. We’re big network. We’ve been out front. We’ve made mistakes. We have 17 hours of live TV a day to do. But I— 
JS: Maybe you could cut down on that. –Audience laughs– So let me tell you why I think this has caused some attention. It’s the gap between what CNBC advertises itself as and what it is and the help that people need to discern this. Let me show you…This is the promo for your show. 
JC: Okay. 
–“In Cramer We Trust” promo”– 
JS: Isn’t that, you know, look—we are both snake oil salesmen to a certain extent– 
JC: I’m not discerning… 
JS: –but we do label the show as snake oil here. Isn’t there a problem with selling snake oil and labeling it as vitamin tonic and saying that it cures impetigo etc. etc. etc. Isn’t that the difficulty here? 
JC: I think that there are two kids of people. People come out and make good calls and bad calls that are financial professionals and there are people who say the only make good calls and they are liars. I try really hard to make as many good calls as I can. 
JS: I think the difference is not good call/bad call. The difference is real market and unreal market. Let me show you…This is…you ran a hedge fund. 
JC: Yes I did. 
–December 22, 2006 video of Jim Cramer– 
JC: You know a lot of times when I was short at my hedge fund and I was position short, meaning I needed it down, I would create a level of activity beforehand that could drive the futures. It doesn’t take much money. 
–End Video– 
JS: What does that mean? 
JC: Okay, this was a just a hyperbolic example of what people— You had a great piece about short selling earlier. 
JS: Yes, I was— 
JC: I have been trying to reign in short selling, trying to expose what really happens. This is what goes on, what I’m trying to say is, I didn’t do this but I’m trying to explain to people this is the shenanigans that— 
JS: Well, it sounded as if you were talking about that you had done it. 
JC: Then I was inarticulate because I did– I barely traded the futures. Let me say this: I am trying to expose this stuff. Exactly what you guys do and I am trying to get the regulators to look at it. 

JS: That’s very interesting because roll 2:10. 
–210 video– 
JC: I would encourage anyone who is in the hedge fund unit ‘do it’ because it is legal. It is a very quick way to make the money and very satisfying. By the way, no one else in the world would ever admit that but I do care. 
Aaron Task: That’s right and you can say that here. 
Unknown: 
Inaudible means I’m not going to say it on TV. 
–End video— 
JC: It’s on TV now (sheepishly)
JS: I want the Jim Cramer on CNBC to protect me from that Jim Cramer. 
JC: I think that way you do that is to show—Okay, the regulators watch the tape, they realize the shenanigans that go on, they can go after this. Now, they did catch Madoff, that’s a shame. 
JS: Now why when you talk about the regulators, why not the financial news network? That is the whole point of this? CNBC could be an incredibly powerful tool of illumination for people that believe that there are two markets: One that has been sold to us as long term. Put your money in 401ks. Put your money in pensions and just leave it there. Don’t worry about it. It’s all doing fine. Then, there’s this other market; this real market that is occurring in the back room. Where giant piles of money are going in and out and people are trading them and it’s transactional and it’s fast. But it’s dangerous, it’s ethically dubious and it hurts that long term market. So what it feels like to us—and I’m talking purely as a layman—it feels like we are capitalizing your adventure by our pension and our hard earned money. And that it is a game that you know. That you know is going on. But that you go on television as a financial network and pretend isn’t happening. 
JC: Okay. First, my first reaction is absolutely we could do better. Absolutely. There’s shenanigans and we should call them out. Everyone should. I should do a better job at it. But my second thing is, I talk about the shorts every single night. I got people in Congress who I’ve been working with trying to get the uptick rule. It’s a technical thing but it would cut down a lot of the games that you are talking about. I’m trying. I’m trying. Am I succeeding? I’m trying. 
JS: But the gentleman on that video is a sober rational individual. And the gentleman on Mad Money is throwing plastic cows through his legs and shouting “Sell! Sell! Sell!” and then coming on two days later and going, “I was wrong. You should have bought like–I can’t reconcile the brilliance and knowledge that you have of the intricacies of the market with the crazy bull— you do every night. That’s English. That’s treating people like adults. 
JC: How about if I try it? (contrite)

JS: Try what? 
JC: Try doing that. I’ll try that. 
JS: That would be great, but it’s not just you. It’s larger forces at work. It is this idea that the financial news networks are not just guilty of a sin of omission but a sin of commission. That they are in bed with them. 
JC: No, we’re not in bed with them. Come on. I don’t think that’s fair. Honestly. I think that we try to report the news and I think that people— 
JS: A couple of guys do. This guy Faber. 
JC: He’s fabulous, Faber. 
JS: And maybe two other guys (Jim Goldman and Eric Bolling … oops, Eric left CNBC)
JC: He’s fabulous and he’s done some things that have really blown the cover off a lot of stuff. 
JS: But this thing was ten years in the making. 
JC: Right. 
JS: And it’s not going to be fixed tomorrow. But the idea that you could have on the guys from Bear Sterns and Merrill Lynch, and guys that had leveraged 35 to 1… 
JC: I know. 
JS: And then blame mortgage holders. I mean, that’s insane. 
JC: I never did that. –unintelligible—I’m sorry You’re absolutely right. I always wish that people would swear themselves in before they came on the show. I’ve had a lot of CEO’s lie to me on the show. It’s very painful. I don’t have subpoena power. 
JS: But don’t—You’re pretending that you are a doe-eyed innocent. Watch. Roll. I mean, if I may… 
JC: It’s your show for Heaven’s sake. 
JS: Roll 2:12. 
JC: No! Not 2:12! (in sarcastic jest)
–2:12 Video– 
JC: You can foment. That’s a violation of… 
Aaron Task: Ferment? 
JC: You can’t FOE-ment. You can’t create yourself, an impression that a stock’s down, but you do it anyway because the SEC doesn’t understand it. That’s the only sense that I would say this is illegal… 
–End Video– 
JS: Now 2:16   

–2:16 Video– 

Aaron Task: Another stock that you’re focused on right now is Apple (AAPL)
JS: Yes, Apple is very important to spread the rumor that both Verizon and AT&T have decided that they don’t like the phone. That’s a very easy one to do. You also want to spread the rumor that it is not going to be ready for MacWorld and this is very easy because the people who write about Apple want that story and you can claim that it is credible because you spoke to someone at Apple because Apple is—doesn’t register. 
Aaron Task: Apple doesn’t comment (Apple generally follows a “no comment” policy to rumors)
–End Video– 
JC: You know. 
JS: I gotta tell you. I understand that you want to make finance entertaining, but it’s not a f—ing game. When I watch that I get, I can’t tell you how angry it makes me because it says to me, “You all know.” You all know what’s going on. You can draw a straight line from those shenanigans to the stuff that was being pulled at Bear and at AIG and all this derivative market stuff that is this weird Wall Street side bet. 
JC: But Jon, don’t you want guys like me that have been in it to show the shenanigans? What else can I do? I mean, last night’s show— 
JS: No, no, no, no, no. I want desperately for that, but I feel like that’s not what we’re getting. What we’re getting is… Listen, you knew what the banks were doing and yet were touting it for months and months. The entire network was and so now to pretend that this was some sort of crazy, once-in-a-lifetime tsunami that nobody could have seen coming is disingenuous at best and criminal at worst. 
JC: But Dick Fuld who ran Lehman Brothers, called me in when the stock was at 40 because I thought that the stock was wrong, I thought that it was the wrong place for it to be. He brings me in, lies to me, lies to me, lies to me. I’ve known him for twenty years. 
JS: The CEO of a company lied to you??!! (shock and sarcastic disbelief)
JC: Shocker … stop trading (sheepish grin) 
JS: But isn’t that financial reporting? What do you think is the role of CNBC? 
JC: Look, I have called for star chambers—I want kangaroo courts for these guys. I have not seen any indictments. Where are the indictments? Where is the indictments for AIG? I told the Justice Department, “Here’s the way you get the indictment.” 
JS: It’s very easy to get on this after the fact. The measure of the network, and the measure of mess. CNBC could act as—No one is asking them to be a regulatory agency, but can’t—but whose side are they on? It feels like they have to reconcile as their audience the Wall Street traders that are doing this for constant profit on a day-to-day for short term. These guys companies were on a Sherman’s March through their companies financed by our 401ks and all the incentives of their companies were for short term profit. And they burned the f—ing house down with our money and walked away rich as hell and you guys knew that that was going on. 
JC: I have a wall of shame. Why do I have banana cream pies? Because I throw them at CEOs. Do you know how many times I have pants CEOs on my show? 
JS: But this isn’t, as Carly Simon would say, this song ain’t about you. 
JC: Okay. All right. You’re right. I don’t want to personalize it. I think we have reporters who try really hard. We’re not always told the truth. But most importantly, the market was going up for a long time and our real sin I think was to believe that it was going to continue to go up a lot in the face of what you just described. A lot of borrowing. A lot of shenanigans and I know I did, I’ll bring it up, I didn’t think Bear Sterns was going to evaporate overnight. I didn’t. I knew the people who ran it, I always thought they were honest. That was my mistake. I really did. I thought they were honest. Did I get taken in because I knew them from before? Maybe to some degree. The guy who came on from Wachovia (new CEO Robert Steele) was an old friend of mine who helped hire me. 
JS: But honest or not, in what world is a 35 to 1 leverage position sane? 
JC: The world that made you 30% year after year after year beginning from 1999 to 2007 and it became— 
JS: But isn’t that part of the problem? Selling this idea that you don’t have to do anything. Anytime you sell people the idea that sit back and you’ll get 10 to 20 percent on your money, don’t you always know that that’s going to be a lie? When are we going to realize in this country that our wealth is work. That we’re workers and by selling this idea that of “Hey man, I’ll teach you how to be rich.” How is that any different than an infomercial? 
JC: Well, I think that your goal should always be to try to expose the fact that there is no easy money. I wish I had found Madoff (sp?)— 
JS: But there are literally shows called “Fast Money.” 
JC: I think that people…There’s a market for it and you give it to them. 
JS: Yeah and there’s a market for cocaine and hookers! What is the responsibility of the people who cover Wall Street? Who are you responsible to? The people with the 401ks and the pensions and the general public or the Wall Street traders, and by the way this casts an aspersion on all of Wall Street when I know that’s unfair as well. The majority of those guys are working their asses off. They’re really bright guys. I know a lot of them. They’re just trying to do the right thing and they’re getting f—ed in the ass, too. 
JC: True. True. I think as a network we produce a lot of interviews where I think that we have been—there have been people who have not told the truth. Should we have been constantly pointing out the mistakes that were made? Absolutely. I truly wish we had done more. I think that we have been very tough on the previous Treasury Secretary (Hank Paulson), very tough on the previous administration how they didn’t get it, very tough on Ben Bernanke. But at the same time. 
JS: But he’s the guy who wrote the rule that allowed people to over-leverage. 
JC: I trash him every night. I’ve called him a liar on TV. What am I going to do? Should we all call him liars? I’m a commentator. We have—and you can take issues with the fact that I throw bulls and bears and I can still be considered serious. 
I’m not Eric Sevareid. I’m not Edward R. Murrow. I’m a guy trying to do an entertainment show about business for people to watch. But it’s difficult to have a reporter to say I just came from an interview with Hank Paulson and he lied his darn fool head off. It’s difficult. I think it challenges the boundaries. 
JS: Yeah. I’m under the assumption, and maybe this is purely ridiculous, but I’m under the assumption that you don’t just take their word for it at face value. That you actually then go around and try and figure it out. So, again, you now have become the face of this and that is incredibly unfortunate. 
JC: I wish I had done a better job trying to figure out the 30 to 1 and whether it was going to blow up. It did. Once it did I was late it saying it was bad. 
JS: So maybe we could remove the financial expert and the “In Cramer we Trust” and start getting back to fundamentals on reporting as well and I can go back to making fart noises and funny faces. 
JC: I think we make that deal right here. 
JS: Mad Money airs on CNBC weeknights at six. 

Enough already …

Just fix it!

bt03To quote Saturday Night Live’s Kenan Thompson, there’s a short list of things that can be done quickly, and at no cost, that will go along way toward “fixing” the stock market. The SEC has allowed greed to run rampant by systematically changing rules that protected the average investor since the last Great Depression.

Here’s the list of “Fixes”

  • Reinstate the Uptick Rule. This rule was designed to check unbridled short selling and was put in place by the nation’s first SEC Commissioner, Joe Kennedy, in 1937 with good reason. The SEC eliminated this rule in July 2007, which has allowed short sellers to pile on individual stocks and drive them down with alarming speed and frequency. If you’ve wondered why the indexes have been making those dramatic and frightening plummets, you can thank the repeal of the Uptick Rule for it. Many have begun to clamor for its reinstatement, including CNBC’s Jim Cramer, Steve Forbes and Ben Bernanke. A bill has been filed in the U.S. House to reinstate the Uptick Rule, H.R. 6517. POLL > Should Congress reinstate the uptick rule?

  • Enforce Naked Shorting Regulations. Insist on a mandatory pre-borrow tracking cusip numbers … everything else is just clever shell game. “Oh sure I located shares to sell short … they’re in your wall_street_roller_coaster1grandmother’s wig.” Short sellers are supposed to “borrow” the real actual shares of a stock before shorting it. The SEC has failed to enforce existing requirements for shorting stocks, which allow shorts to go “naked” without completing a true borrow of the shares. This allows short sellers to “pile drive” down targeted stocks with no regard for playing by the rules. 
  • Mark to Market. This rule was put in place in 2007 and forces banks, insurance companies and other financial institutions to “mark” (price on their balance sheet) assets at their current market value. Yet under current conditions, only predators are willing to bid … insultingly lowball bids at that. This has resulted in another alarming death spiral for banks and companies holding positive cashflow assets that have been marked down to fire sales prices (pennies on the dollar) due to a total “buyers strike.” This can be fixed by amending FAS 157 “Mark to Market” and replace it with a “Mark to Model” where cash flows can be factored in valuation.

This deregulation of the markets while the SEC was asleep at wheel during the Bush Administration has resulted in the total destruction of the average investor’s retirement funds. It’s time for the current Administration to just “fix it.”

As a recent WallStreet Journal editorial explained, “If the president really takes Roosevelt’s legacy seriously, he should suspend mark-to-market accounting rules, restore the uptick rule, and enforce the prohibition against naked short selling. If he doesn’t, historians will look back in utter amazement at Mr. Obama’s preservation of Mr. Bush’s worst economic policies.”

Call or write your Congressperson and the Obama Administration to demand action. Tell them to “JustFix It!”

Write Your Representative! > HERE

More background > HERE