Bill Mann apparently has a new treatise out, wherein he simply dismisses all the evidence provided by numerous experts on NSS and clearing and settling as being inconsequential, and directs anyone interested to the party line - the official SEC response. He also blends short squeezes - the legal situation where prices rise from a presumably depressed level (due to a disequilibrium of supply and demand) as short investors are required higher prices in order to cover their bet - and illegal naked short selling - an illegal manipulation tactic to depress a company's stock in order to create financial gain for the manipulator, at the expense of investors.
Now, despite the fact that Bill issues forth long statements about the due diligence he has conducted in order to arrive at the conclusion that he doesn't want to spend the time to learn the subject matter enough to actually understand it, apparently he was able to discover the actual size of the problem - something the rest of the world isn't able to do, given the lack of data. Additionally, he was able to determine that there is far more pump and dump fraud then there is NSS, thus we shouldn't worry about it. How he knows this, we are never told.
His repertoire really consists of advancing a number of hackneyed notions about the valuable service short sellers perform (while ignoring that naked short selling is not legal short selling), and how we should listen to nothing but official positions as to what is being done, and the size and scope of the problem, etc.
I was sent the text of his latest, and responded to my buddy, who sent me the post, thus:
“Golly Bill, that's all super.
I went to the source documents, and was unable to find where they put out the grandfathering for comment. They just sort of pardoned all prior instances of NSS to 2005 from ever having to settle. No request for comment, no disclosure in the rule suggestion that they would do so. They just did, behind closed doors, unexpectedly, with no warning.
I also missed where they explained why, if NSS was such a small problem, they needed to grandfather.
I further missed where wanting to have a company not be wildly manipulated by illegal naked short selling is manipulation - it is interesting to me that you share the Wall Street view that a short squeeze - the exact opposite of a short attack - is manipulation, but the short attack that takes the value out of the company's shares (which is returned to the company's shares in a squeeze) is a helpful boon to the market.
I further missed where the equivalent of the 1929 bear raids, is healthy for the markets. I thought those were bad, as they resulted in the SEC being created. I guess they aren't bad, and instead are good, or at least not that big a deal.
I suppose you didn't look too hard for resources on clearing and settling. It is explained in detail on the DTCC's website, as well as at TheSanityCheck.com, and NCANS.net.
Your perspective sounds an awful lot like, "Don't listen to any of the critics, just buy the government perspective on this issue." That is wonderful - we did it in the S&L crisis, and heard from the government that S&L shenanigans were a triumph of new American Capitalism. That cost us, as a country, about half a trillion dollars. We also did that in the Iraq war - that turned out to be us overthrowing a sovereign nation on false pretenses, and spending hundreds of billions, whilst irradiating most of Iraq and Afghanistan with depleted uranium that we use in our shell casings - as well as Europe, when that dust of carcinogens is carried by the Sirocco winds up through Portugal, Spain and Italy, over France, and across to England. We did it with Watergate - turned out to be a crooked President lying, all the while insisting to be innocent. Or how about where the government allowed syphilis to go untreated in African American service men for 20 years - to see what happened? Or let’s ask any Native American about the Government’s reliability in keeping its word and representing things fairly. Or Cuba in the Spanish American war, where we used the accidental explosion of a boiler on a steam ship as justification for going to war (to grab territory we coveted). I could go on, but I’m hopeful you are seeing a trend – the government’s spin on things is not always reliable.
Eisenhower warned against complacency and credulous acceptance of the government's spin on things - you might remember him - President Eisenhower - the highly conservative war hero?
It sounds like you have done little due diligence, don't understand the issues, and are content with an unquestioning belief in the government’s official position statements and source documents.
Everyone is entitled to an opinion. Yours is worth what we paid for it.
Thank you for your time.”
To be fair to Bill, here are some of the nuggets he puts forth:
“-- It is nearly impossible to harm a healthy business through shorting, legal or illegal. It is possible to harm the shareholders of legitimate business, by scaring them out of their shares, but that's not what NSS countenances. Unless the company requires funding and cannot get debt or other non-equity-based financing, it is impossible for a short to cut off capital. I'm having a hard time coming up with a scenario where a healthy company would lack access to every other capital market except selling equity. Shorts have served to prevent crappy businesses and frauds from gaining access to more capital. For this they should be praised, not buried.”
Nearly, huh? And Bill, why do you keep using the term short, and naked short (an illegal manipulator) interchangeably? Perhaps you should do just a tad more diligence, and then you won’t make the fundamental mistake of using terms like banker and counterfeiter interchangeably. Just an idea…
“-- Most delivery fails seem can be explained by something other than intentional naked shorting.”
Really? Super. Then show us the data, don’t hide it.
That statement also conflicts with Dr. Boni's work for the SEC, wherein she established that most naked short selling was intentional - strategic, even. But why believe the SEC's own academic, when you can believe, well, someone else? This is puzzling given that we are supposed to believe the SEC, and yet apparently only until the SEC or their experts arrive at a conclusion that contradicts your hypothesis, at which point the SEC's expert is unreliable. Huh.
“-- Given the incentive bias of most investors. who want shares to go up, it is 100 times easier to propagate a fraud on the long side of the market than on the short side. It is also 100 times more common.”
Really? Cite the data. Oh, and Bill, just because there are 100 more enforcement actions against long manipulators than short manipulators, doesn’t mean there are 100 times as many frauds – it means that the SEC has a bias to be pro-participant, and further that the level of sophistication of the modern short manipulator far exceeds the SEC’s investigation capabilities, whereas they understand long manipulation, and being chronically understaffed and under-funded, they go for the low hanging fruit.
“-- If naked short selling were as large of a problem in as persistent a volume as is being asserted, certain kinds of corporate actions would be extremely problematic. For example, when Washington Mutual bought Providian, there had been a large short interest in place for Providian's stock. Why was there no indigestion? If not in this transaction, at some point one would expect that an enormous naked short selling problem would have thrown the accounting for some corporate transaction of this sort into limbo. I don't have an answer for this, but one would suspect that over time, there would have been AN instance of a large overage of shareholders expecting to be compensated.”
Wrong. In point of fact, I brought this up in an earlier blog – the acquiring entity is defrauded in the stock swap, as its shares are simply diluted to the extent of the smaller entity’s NSS overhang, as Wall Street simply changes the name from oldco to bigco on all the shares, including the NSS position. In a cash deal where the smaller, depressed company is acquired for cash, that simply locks in the exit on the short – if they are acquired for $10 per share, having dropped from $30, then all holders, including those holding FTDs, receive $10 – enabling the manipulators to keep the delta between their short price and $10 – that is where the cash comes from.
“Here's what else I concluded. The only place where you can actually get a grasp on what naked short selling is, and what it is not, is to ignore the screaming and to go to the SEC and read the original documents. I have found no presentations nor desriptions (sic) that adequately described the mechanics of clearing a trade.”
I guess Bill missed most of the materials at the DTCC that describe how a trade is processed, or the primer here on NSS, which explains it in detail. Or at NCANS, which contains a schematic.
He goes on to discuss how short sellers protect us all, and that while there is some abuse, they do the market a valuable service. What isn’t really explained is what this has to do with 1920’s style bear raids using illegal naked short selling, or how those are a valuable service.
Now, when referring to the source documents, nowhere did I find an explanation for why, if NSS is a small problem, the SEC had to grandfather. Nor could I find in the proposed rule where they even hinted that they would do so. The reality of grandfathering is in stark contrast to the SEC documents, which strive to spin things from the perspective of a regulator whose pro-participant bias was in evidence in every major scandal of the last 20 years – where it was NEVER the SEC that was the first mover to discover a fraud, or prosecute it – it was the states, or whistle-blowers, or newspapers.
I’ll leave you with a final bit from Bill, which says it all, IMO:
“Let me repeat something that I asked in the first post: Are you opposed to short squeezes? It's not necessary that you answer to me on this. But depending on your answer to yourself, you might get some more clarity on your true beliefs about market manipulations and distortions. Because if naked short selling is bad, and evil, and costly to a subset of the investing population, then short squeezes, which also happen without reference to the underlying condition of the company and may be prusposely (sic) triggered, should also be something you believe to be immoral and costly.”
Bill. Again. Illegal naked short selling – bad, and illegal. Short squeezes, wherein short sellers have to buy shares at ever higher prices due to a lack of supply of shares with which to cover – not illegal, thus not bad.
Now you could say that short squeezes COULD be manipulated – sure, and cars COULD be used to commit murder. But that wouldn’t make all cars bad. Or car ownership illegal. It would make murder illegal, and stock manipulation illegal.
The distinction seems pretty obvious to me. It seems lost on Bill. That explains much of the problem – Bill doesn’t make a distinction between illegal naked short selling, and legal short squeezes which occur as shorts have to pay more to cover their positions.
That is a big distinction, and the fact that he fails to make it speaks volumes, IMO. But that is just one "dangerous blowhard's" opinion...