I read the latest opinion column in the NY Times with mouth agape, unsure how so much one-sided vitriol had made it onto the page.
The article in question, which could well have been titled, "Short sellers are great and anyone that wants to rein them in is a fascist," is an ode to how super duper wonderful short sellers are, and how all those silly regulations passed after the Pecora hearings revealed the extent to which Wall Street and stock pools had manipulated the markets are nothing more than restrictive horse and buggy voodoo, passed by dimwits in the stone age.
You can read it here.
I'll excerpt a few passages, but before I do, I would advise everyone to read the final paragraph of this piece, wherein the author admits that he works for a short biased hedge fund.
Huh.
I would think that if one of the charter members of NAMBLA were invited to write an op piece, we would hear about how ancient Greeks celebrated the forbidden fruits of youngsters, and how all the current regulations against pedophilia are merely superstitious nonsense passed by fuddy duddies. I actually expect to see that as the Foley defense at some point. But I digress.
Here are some priceless bits of nonsense, proudly published by the Times:
"The short sellers’ skeptical scrutiny of companies they feel are overpriced has led them to uncover many of the major financial frauds of recent years. Yet they continue to be burdened by a regulatory scrutiny of their own actions that springs more from rumors than fact. In the 1930’s, short selling was hobbled by restrictions intended to prevent the “bear raids” many thought then (but few think now) underlay the market collapse of 1929. These included the “uptick rule,” which prohibits short sales when the price of a stock is in decline."
I'm sure that some short sellers expose fraud. Good on 'em. The "hobbling" rules against naked short selling, and requiring an uptick for a short sale, were created due to direct testimony during the Pecora hearings, where incident after incident of abusive market manipulation by the bear raiders of the day was described in Congressional hearings. That isn't rumor. It is part of the public record. That few may think that bear raids played a massive role in the 1929 Crash speaks far more to the ignorance of gentlemen like the author, than some fundamental change in the facts. I do so enjoy when Wall Street does the revisionist history bit - which it is constantly trying to do. Witness the Milken effort to paint himself as a victim, a national treasure, friend to impoverished people of color, someone hunted down as if by an angry mob and unjustly accused. That didn't play so well because even the American public can remember a year or two back. But still, it was tried, and books even came out as part of the rehabilitation scheme, touting what a saint the poor man is.
It's in the same spirit of self-serving revisionist history that this article is written. The above bit about how silly those imaginary bear raids were, in retrospect, is a typical tactic in propaganda of any sort - declare things to be different than they are, repeat the lie, marginalize any opposition or contradictory data, and find a credible channel to disseminate it. Mission accomplished.
Here's some more:
"At a meeting of prominent economists held by the commission last month, consensus held that price restrictions on short selling were a regulatory anachronism of no benefit to the market. Stocks freed from the uptick rule had shown no greater vulnerability to momentum selling than the control group. A few panelists, in fact, uttered the heresy that bear raids are now so uncommon that they no longer need be of concern to regulators.
No such view was expressed, however, regarding the flip side of the bear raid: the “pump and dump,” a scheme in which someone promotes a worthless stock he owns, then sells it as gullible investors fall for the promotion. Panelists noted that these schemes remain commonplace, particularly among small-cap stocks, with fax and spam e-mail messages joining more traditional methods to tout toxic stocks. "
Yes. I was listening attentively as all the experts - a stacked deck of pro-short selling academics, some employed by hedge funds - used their 5 minutes of commentary time to not discuss the topic of the hearing, but rather to advance arguments about how wonderful short sellers were. I remember wondering if the SEC thought everyone was stupid enough to buy the dog and pony show, or whether it was obligatory. How surprising that these guys, like our author, who WORKS AS A SHORT SELLING HEDGE FUND CHOAGIE, would take the position that his employer and his work, was noble and good.
I mean, that is so unexpected.
Equally unexpected is how quickly the now "by rote" conversion of abusive short selling discussion is converted into a red herring about alleged pump and dump activity. It is literally a script. It is the script we saw used in the Wikipedia article on the topic, and it is the script used here - almost as though an organized PR campaign, complete with approved talking points, has been mounted - which of course is impossible to believe would happen, given the tens of billions controlled by just a few of the large short selling hedge funds, and their enormous self-interest in removing any and all restrictions to their unfettered short selling of their targets. I mean, if I had billions on the line, the last thing I would do is mount an organized lobbying effort.
That is so unheard of.
"As an enforcement lawyer at the S.E.C., I received from short sellers early warnings on certain companies that led to the capture and return to investors of hundreds of millions of dollars taken by stock frauds. Such information came from no other source — certainly not from institutional stock analysts, whose failures of objectivity were made notorious by the Attorney General Eliot Spitzer of New York. Representing short-biased hedge funds as a part of my practice as a private lawyer, I continued to be impressed by their ability to spot stock frauds in the early stages.
But if short sellers are friends to the S.E.C., the commission has been no friend to short sellers. The agency has saddled short sellers with trading restrictions and has looked the other way when companies have taken potentially illegal actions to silence short sellers’ criticism."
I wonder, if this guy was involved in the baseless TASR SEC investigation that helped remove 50% of that company's market cap? Is that an example of short sellers helping the SEC fight fraud? You know, where the SEC, with huge fanfare, decides it is going to investigate safety claims (something it has no authority or expertise to do) , while the stock loses more than half its value, directly linked to the "trouble" at the company?
Would that be the sort of thing he's thinking of? Or maybe it is the baseless probe into NFI, or ACAS, or any of the other companies targeted by one of maybe a dozen or so prominent bad guy funds, which resulted in massive devaluations in their stock prices? I wonder which short seller the author now works for? That would be a great question to know the answer to...
There's more:
"In addition, the S.E.C. staff has been willing, indeed eager, to pursue investigations against short sellers based on complaints from companies that the shorts have said mean things about them. One recent case made national news: the S.E.C. staff sent subpoenas to financial journalists suspected of using short sellers as sources for their articles — as if that were somehow improper."
What is improper is deliberately participating in a scheme to manipulate the price of a stock using carefully timed articles and research reports coordinated and crafted by the funds, and released to coincide with a massive short selling attack - after front-running the event by taking fortuitous positions that benefit from the big downdrafts. Which the author would know, or should. But instead, he is ignores the substance and again tries to rewrite history. And he ignores that the subpoenas were quickly sabotaged by Cox, and relegated to oblivion. That would be where the enforcement staff gets kneecapped by political appointees, with no experience investigating anything.
Perhaps this best summarizes the author's duplicity and sentiment:
"The number of short-biased funds is in decline. Those still operating are less likely than before to bring contrarian information about companies to the attention of regulators and the press, in part because of the S.E.C.’s stance toward a group that should actually merit its gratitude, and also because of the recent trend among troubled companies to sue those who have the temerity to short their stock."
Again, mis-characterizes the lawsuits alleging market manipulation and unfair business practices, as companies suing those who short their stock. It also posits the logical impossibility that even as the hedge fund industry moves into the multi-trillion dollar arena, and short selling is known to be over 25% of the trading on the NYSE every day, that this is some sort of endangered species, a new class of victim. Huh. Who is doing all that short selling, I wonder? And don't hedge funds mostly short, as part of their role as HEDGE FUNDS? They short as a hedge against long positions in the market? ?!?!?
I'm sure that Elgindy, who was a trusted source for the SEC in revealing fraud, and who is now behind bars for a very long time, is the example of short selling victims who are actually American heroes the author has in mind. Convicted stock manipulator, insider trader, naked short seller, who tried to liquidate his portfolio and wire it to Lebanon the day before 9/11, and who bragged to his broker that the Dow would lose 3000 points the next day, is precisely the sort of poor victimized short seller he is thinking of. Because that is the most prominent one I can think of at the moment. Even now he defends his behavior, wrapped in the flag, insisting that when he was caught trying to jump bail, on a fake ID, and fly to the Middle East, it was all a big mistake.
These kinds of articles underscore how much time and effort is going into pushing an agenda that is provably false. I would love to know which hedge fund this guy now works for. Wouldn't it be a hoot of it was one of the prominent funds being sued, or one of the affiliated funds that works with them in the structured takedowns we've all seen?
At least we have another great example of why the SEC is toothless in their pursuit of hedge funds like those - Wall Street is one of the big employers of ex-SEC personnel who want a 5-fold pay increase. What a shock that current SEC personnel don't want to police those they will be dependent upon for their retirements...