<object id="cnbcplayer" height="380" width="400" classid="clsid27CDB6E-AE6D-11cf-96B8-444553540000" codebase="http://download.macromedia.com/pub/shockwave/cabs/flash/swflash.cab#version=9,0,0,0" > <param name="type" value="application/x-shockwave-flash"/> <param name="allowfullscreen" value="true"/> <param name="allowscriptaccess" value="always"/> <param name="quality" value="best"/> <param name="scale" value="noscale" /> <param name="wmode" value="transparent"/> <param name="bgcolor" value="#000000"/> <param name="salign" value="lt"/> <param name="movie" value="http://plus.cnbc.com/rssvideosearch/action/player/id/1066340832/code/cnbcplayershare"/> <embed name="cnbcplayer" PLUGINSPAGE="http://www.macromedia.com/go/getflashplayer" allowfullscreen="true" allowscriptaccess="always" bgcolor="#000000" height="380" width="400" quality="best" wmode="transparent" scale="noscale" salign="lt" src="http://plus.cnbc.com/rssvideosearch/action/player/id/1066340832/code/cnbcplayershare" type="application/x-shockwave-flash" /> </object> The uptick rule was a brilliant creation, and we will not have peace in the markets until it's restored. We've been on a crusade on this show to bring back honest short selling. You, Mr. Commissioner, just simply haven't bothered to enforce the law. The SEC, and maybe even this Administration, has basically allowed short sellers to destroy or at least sew a level of fear in financials that could bring the banking system down. The Chris Cox SEC was largely responsible for the largest destruction of wealth and value in stock market history. [Music/Sound Effects] If you thought the SEC under Chris Cox was merely bad [Sound Effects] rather than shamefully derelict in its duties and guilty of the absolute worst, most outrageous sort of negligence [Sound Effects] then allow me to correct that misperception. After Bear Stearns got taken down as Lehman collapsed and all the other financials were pushed down by relentless short selling, I went on a crusade right here - or a jihad, if you prefer - to stop the practice of what's known as naked short selling, where the short sellers sell a stock without having borrowed the shares first. I screamed that this was destroying the financial system and killing the banks. And even if you hate the banks 'cause of the bonuses, we need them. Apparently, nobody - nobody at the SEC was listening. [in Mocking voice] "I'm not listening, I'm not listening," you know, like Gollum. They didn't understand that if short sellers could sell much more stock than there is stock, which is what was happening, then the short sellers can overwhelm even the healthiest of financials. These shorts were creating stock out of thin air and then using it to smack share prices down. They didn't own it! They couldn't find it! They didn't need to! They just overwhelmed it! [Sound Effects] And you paid the price because the SEC never even understood the nefarious nature of this kind of short selling. Of course, if you could only sell stock that you had borrowed first, there's no way you could sell more shares than there are outstanding. Unlimited supply created by shorts means limited demand by buyers, as they will always be swamped and scared [Sound Effects] by new stock that doesn't even exist. Why did - why did Cox not understand that? Or did he not care? How could he be so in league with the short sellers banked on destroying the banking system? He was truly, truly what my Great-great-uncle Lennon would describe as being a useful idiot. Now, in my day as a hedge fund manager, we all thought that using naked short selling to manipulate stocks was illegal. It still is. You can trust me; I'm a lawyer - I don't just play one on TV. But apparently, Chris Cox's laissez-faire Republican SEC didn't care; they didn't enforce the rules. And because of that, Lehman died, and Bear was only saved by a last minute Fed-orchestrated take under. I can hear the arguments from the shorts, "All the stocks deserved to go down, Jim, they all had it coming; they needed to be euthanized." Maybe - but now we know they had plenty of assistance from naked short sellers who illegally banged down the stocks to sew fear. I want you to take a look today - really good article. There was a good article in Bloomberg, too, but this is a good article in The Wall Street Journal, C1. In over a year-and-a-half, the SEC got 5,000 complaints about this stuff - 5,000. How many of them did they investigate? Well, let's see, 123, 2.5 percent of the complaints. Alright, how 'bout this: how many cases did they bring? Which is what you really use - when you bring a case at the SEC, everybody gets scared; you stop doin' it. They brought zero cases. You want someone to blame for the financial collapse? I think the SEC is lookin' like a great target; they just let this happen. In contrast, the SEC investigated 12.5 percent of the insider trading complaints. Look, this is what happened to Lehman - I think we know this because of the huge spike in what's called "fails to deliver." That's when a short seller basically sells stock to have 'em borrowed and then doesn't come up with the shares within three days; that's the technical stuff - I want you to know this. There's only one reason to do this, because you want to manipulate a stock down. Because you wanna scare - you wanna scare the heck out of the company's shareholders so they panic and sell! [Sound Effects] When you sell a stock short and have no intention of actually fulfilling the trade, you are purely manipulating the market for your own gain. Now, right before Lehman collapses, 32.8 million shares were sold not delivered. That's - when I read this, I was just astounded; that was as of September 11th of 2008 - that's 57 times as many failed trades as there were in the prior year's peak. At the same time, these trades are happening, somebody - I'm guessin' the same people who were knockin' the stock down - were circulating [Sound Effects] over and over again false rumors on trading desks, on phone lines - we could get this stuff - about how Lehman will be acquired at a discount, a Bear-style take under, and that it was losing two trading partners. We could've gotten this, it's all on tape, but this SEC never subpoenaed it. If that's not market manipulation nothing is. The hedge funds fought the law, and the law did not win; the law didn't even try. If they hadn't manipulated the stock down - the company could've issued stock to save itself, keep all those people in business instead of all this unemployment - the ratings agencies wouldn't have reacted and panicked and downgraded it. The ratings agencies - useless. All they do is look at the stocks - stocks go down, they cut the ratings. It's a vicious cycle that only wiped out the company. Remember, Bear, Lehman, these are not cereal or soda stocks. You don't stop drinking Coke or eating Corn Flakes if Coke or Kellogg's stocks go down. But when the stocks of these financial companies go down, people pull their money from the banks, and it puts 'em out of business, which is what the SEC abetted here - worse. It's possible that these failed trades caused between 30 and 70 percent of the declines in both Lehman and Bear. At the time, everyone insisted this wasn't happening. Now, I was the only guy out here screamin' that the shorts needed to be reined in and investigated. You know, even Dick Fuld, the CEO of Lehman, who eventually blamed his company's total annihilation on the shorts, he didn't believe these rules mattered. He was actually in favor of keeping the uptick rule of not reinstating it. Well, um, hey, another useful idiot. Anyway, now we all know the truth, and it's beyond outrageous. Do I wanna see these naked short sellers investigated? You bet. And, now, I know you gotta investigate 'em before you put 'em in jail - god, I can't skip the whole process like I'd like. But honestly, what I really want is an SEC that does its job and makes sure that these things don't happen again. If they restore the uptick rule, which would force the shorts to wait for a stock to move higher before they can bang it down - that was a rule, by the way, of course, Chris Cox eliminated - then these kinds of shenanigans and bear raids would be much harder to perpetrate. If the hedge funds can't knock the stock down endlessly with fraudulent naked short sales, there's no incentive for them to break the rules. You know what? This stuff's killin' (Chuckle) - this stuff's killin' me. I mean, we screamed about it on this show when it still mattered, and now - now we get blamed for causing the problem. Excuse me for bein' a little infuriated - you just, like, take the beat down like a man. I really hate to say I told you so, but, well, I told you so. [Music] Now, let's hope Obama's SEC under Mary Schapiro will actually do its job and enforce the rules; that would be a real terrific break with the useful idiot's past. Mad Money's moneys back after the break. [End of Audio]
fly, these people here are either idiots or pretending to be idiots. they simply refuse to accept that there is manipulation at every opportunity. lets them sleep better.
And it hurts everybody but themanipulators. How can your setups work if the manipulation is rampant??? They can't.
Regular shorting and naked shorting is different. Regular shorting you have to cover at some time. So it will never affect the market. However, naked shorting will affect the market because they does not has to cover. They basically short and STEAL the money. Since they never has to cover it, they report no gain. It is a shame why naked short selling is even allow. If only I can naked short selling, I would be a billionaire already.