Repeating The Lie

You ever feel like you are living in one of those old black and white movies, where the storm troopers show up to disappear your neighbor, and you cringe as you peer through your curtains, praying that they don't come for you, but also unwilling to try to oppose the ruthless force of the all-powerful regime?

I felt a bit like that as I read the latest bit from Trader's magazine on Reg SHO. It takes a little bit of explanation, but you will quickly see what I'm talking about as I discuss this piece.

This article is unremarkable on its face, in that it chants the Wall Street mantra, and simultaneously tries to argue that delivery failure is a trivial problem, but that, tut tut, changing the rules that allow participants to refuse delivery virtually whenever they feel like it, would gridlock the system.

Apparently the writer and editors at Trader's missed that contradiction. As does the entire US financial media machine.

See if you can spot it in this excerpt, as well as the obvious lie that is repeated ad infinitum by the industry's flacks:

"This is going to have a serious impact on our ability to make markets," Mark Madoff, co-director of trading at the family-owned firm, said of the SEC's plan. He spoke on a panel at the Security Traders Association's annual conference.

At issue is the regulator's plan to eliminate the so-called "grandfather" exemption of Reg SHO's Rule 203(b)(3). This loophole allows a market maker to avoid delivering a security he has sold short. The exemption applies only to certain securities under specific circumstances.

Rule 203(b)(3) requires broker-dealers to close out their short positions in so-called "threshold" securities if they have failed to deliver the security to the buyer within 13 settlement days.

Threshold securities are those that have relatively high rates of non-delivery. They are typically less-liquid stocks that can be difficult to buy or borrow.

The self-regulatory organizations publish daily lists of their threshold securities. In total, about 300 names make the lists on any given day. They include exchange-listed as well as OTCBB stocks.

Currently, a broker-dealer is exempted from Rule 203(b)(3) if it shorts a security that became a threshold security in the days following the trade.

The exemption was granted to help market makers provide liquidity in thinly traded names without fear they will suddenly be forced to close out short positions.

Reg SHO has reduced the number of fails to deliver-the National Securities Clearing Corporation estimates only one percent of all trades result in fails to deliver-but the SEC wants to go further."

It has reduced the number of fails? What about the $63 billion number on the SIA's own spreadsheet, from Q2, 2006? Or the FOIA data that shows an increase in the number of failures? Why is the press so studiously ignoring data that is only a mouse click away? Stored here for your enjoyment and reflection? Why is a lie repeated, when the truth is easily available, and irrefutable at that?

Reg SHO hasn't reduced anything but my belief that we are operating under the rule of law. Delivery failures are as big or bigger a problem than when it was implemented. That is what all the information tells us. There is no data to suggest otherwise. None. Except a cherry-picked data mining exploration designed to make it appear that the rule had any positive impact whatsoever. Long since debunked, as hundreds of comment letters on the SEC's website underscore.

Which the press studiously ignores.

Why is that?

Why is it that the reporters and editors are now toeing the line that Wall Street is good for bones and teeth, and that Reg SHO is good, and that delivery failures are a small issue, when the data shows that is a lie?

My hunch is that if you want to stay employed in the financial media, you don't buck city hall. Better to claim Aguirre is a wacko, and proclaim that delivery failures are a non-issue, than to report the truth.

The truth is dangerous. The truth can get you fired, or hurt, or destroyed, financially, reputationally, or worse.

Which brings us back to the black and white movie where the goose-stepping secret police haul off a dissident as the community hides and does nothing, and the captured media of the time prints whatever the regime feels is in its best interests.

We always look back at history and smugly assure ourselves that these sorts of things can never happen here, that it is impossible for a military/financial/industrial complex to so totally own the system that it can behave as despicably as it likes, all the while insisting via its media apparatus that it is fighting the good fight - and the media goes along.

That was always somebody else's problem. It was "them" that allowed "that" to happen "there." They were deficient. We are different. Better. More vigilant. Ethically superior.

And yet we now face an ethical and moral dilemma - a segment of the financial/industrial complex is literally stealing many billions of dollars, and refusing to deliver the product it sold to unsuspecting citizens, all the while insisting that no such thing is happening, but that the system would crash if it was stopped....

And the media repeats it verbatim, over and over again. Sort of, "Let me keep my bowl of gruel and bread crust, and I'll gladly turn a blind eye, or even repeat the lie."

Because nobody wants to be the one hauled off, or fired, or destroyed.

The thing that has always been one of this country's most valued assets is the notion of the freedom of an independent press, and its watchdog role against precisely that sort of totalitarian abuse of power - lying, cheating, stealing, abusing the population, becoming more brazen as power is consolidated, the violations more egregious as the population's acquiescence becomes the rule.

And yet we see campaigns in the WSJ to tar and feather Aguirre, we see complete silence in the press about the SIA's $63 billion in delivery and receipt failures, we witness a complete lockdown on any discussion of the FOIA data that shows the establishment's statements to be a pack of lies.

Stories are killed. Sanitized. Spin is initiated. Lies are repeated. Black is white, war is peace.

Think I'm describing Soviet-era Russia or some other equally repellent fascist regime, where the press became the lapdogs of the power structure, propagating whatever the lie of the day was, and cowering before the might of the unbeatable force? Where the cynical enablers rationalized that it was better that they maintain their positions, even if it meant lying and becoming part of the problem, because if they didn't, someone else would anyway?

Think again. Look around. This is precisely how these things devolve. You are watching as it happens, here, to us. Not there, to them.

Happy New Year.