http://harveyorgan.blogspot.com/2012/05/ecb-suspends-payments-to-recapitalize.html
Good evening Ladies and Gentlemen:
Gold closed down by $20.60 to $1536.20. The price of silver also fell by 88 cents to $27.17.
Gold tumbled with this announcement:
I rest my case.
The gold and silver markets were fast today as prices were basically all over the board.
We heard today that Greece will no longer receive money to recapitalize its banks mainly because that money has already been sent down to Greece and spent on other things. You have to just love the Greeks.
They are just toying with the European authorities as they know a sovereign default in Greece will set up contagion like effects to other peripheral European nations. The Greek authorities have set June 17.2012 as the election day. In physical news we witnessed that Soros quadrupled his investment in gold through the GLD. Gold has also entered into a front end backwardation which will be discussed by Ken Weiner.
Also for the first time, the Japanese pension fund has decided to purchase gold !
and articles of note include .....
Submitted by Tyler Durden on 05/16/2012 07:15 -0400
and....
"Fuck the compliance area – procedures, schmecedures," chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.
We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for "our more powerful enemies," i.e. would work with Overstock on the company’s lawsuit.
"He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding," the lobbyist writes, "while resistance results in isolation."There are even more troubling passages, some of which should raise a few eyebrows, in light of former Goldman executive Greg Smith's recent public resignation, in which he complained that the firm routinely screwed its own clients and denigrated them (by calling them "Muppets," among other things).Here, the plaintiff’s motion refers to an "exhibit 96," which refers to "an email from [Goldman executive] John Masterson that sends nonpublic data concerning customer short positions in Overstock and four other hard-to-borrow stocks to Maverick Capital, a large hedge fund that sells stocks short."
Was Goldman really disclosing "nonpublic data concerning customer short positions" to its big hedge fund clients? That would be something its smaller, "Muppet" customers would probably want to hear about.
When I contacted Goldman and asked if it was true that Masterson had shared nonpublic customer information with a big hedge fund client, their spokesperson Michael Duvally offered this explanation:
Anyway, the document is full of other interesting disclosures. Among the more compelling is the specter of executives from numerous companies admitting openly to engaging in naked short selling, a practice that, again, was often dismissed as mythical or unimportant.
A quick primer on what naked short selling is. First of all, short selling, which is a completely legal and even beneficial activity, is when an investor bets that the value of a stock will decline. You do this by first borrowing and then selling the stock at its current price, then returning the stock to your original lender after the price has gone down. You then earn a profit on the difference between the original price and the new, lower price.
What matters here is the technical issue of how you borrow the stock. Typically, if you’re a hedge fund and you want to short a company, you go to some big-shot investment bank like Goldman or Morgan Stanley and place the order. They then go out into the world, find the shares of the stock you want to short, borrow them for you, then physically settle the trade later.But sometimes it’s not easy to find those shares to borrow. Sometimes the shares are controlled by investors who might have no interest in lending them out. Sometimes there’s such scarcity of borrowable shares that banks/brokers like Goldman have to pay a fee just to borrow the stock.
These hard-to-borrow stocks, stocks that cost money to borrow, are called negative rebate stocks. In some cases, these negative rebate stocks cost so much just to borrow that a short-seller would need to see a real price drop of 35 percent in the stock just to break even. So how do you short a stock when you can’t find shares to borrow? Well, one solution is, you don’t even bother to borrow them. And then, when the trade is done, you don’t bother to deliver them. You just do the trade anyway without physically locating the stock.
Thus in this document we have another former Merrill Pro president, Thomas Tranfaglia, saying in a 2005 email: "We are NOT borrowing negatives… I have made that clear from the beginning. Why would we want to borrow them? We want to fail them."
Trafaglia, in other words, didn’t want to bother paying the high cost of borrowing "negative rebate" stocks. Instead, he preferred to just sell stock he didn’t actually possess. That is what is meant by, "We want to fail them." Trafaglia was talking about creating "fails" or "failed trades," which is what happens when you don’t actually locate and borrow the stock within the time the law allows for trades to be settled.
If this sounds complicated, just focus on this: naked short selling, in essence, is selling stock you do not have. If you don’t have to actually locate and borrow stock before you short it, you’re creating an artificial supply of stock shares.
In this case, that resulted in absurdities like the following disclosure in this document, in which a Goldman executive admits in a 2006 email that just a little bit too much trading in Overstock was going on: "Two months ago 107% of the floating was short!"
In other words, 107% of all Overstock shares available for trade were short – a physical impossibility, unless someone was somehow creating artificial supply in the stock.
Goldman clearly knew there was a discrepancy between what it was telling regulators, and what it was actually doing. "We have to be careful not to link locates to fails [because] we have told the regulators we can’t," one executive is quoted as saying, in the document.One of the companies Goldman used to facilitate these trades was called SBA Trading, whose chief, Scott Arenstein, was fined $3.6 million in 2007 by the former American Stock Exchange for naked short selling.
The process of how banks circumvented federal clearing regulations is highly technical and incredibly difficult to follow. These companies were using obscure loopholes in regulations that allowed them to short companies by trading in shadows, or echoes, of real shares in their stock. They manipulated rules to avoid having to disclose these "failed" trades to regulators.How they did this is ingenious, elaborate, and complex, and we’ll get into it more at a later date. In the meantime, this document all by itself shows numerous executives from companies like Goldman Sachs Execution and Clearing (GSEC) and Merrill Pro talking about a conscious strategy of "failing" trades – in other words, not bothering to locate, borrow, and deliver stock within the time allotted for legal settlement. For instance, in one email, GSEC tells a client, Wolverine Trading, "We will let you fail."
More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to "short an impossible name and fully expecting not to receive it" he would then be "shocked to learn that [Goldman’s representative] could get it for us."
Meaning: when an experienced hedge funder wanted to trade a very hard-to-find stock, he was continually surprised to find that Goldman, magically, could locate the stock. Obviously, it is not hard to locate a stock if you’re just saying you located it, without really doing it.
As a hilarious side-note: when I contacted Goldman about this story, they couldn't resist using their usual P.R. playbook. In this case, Goldman hastened to point out that Overstock lost this lawsuit (it was dismissed because of a jurisdictional issue), and then had this to say about Overstock:
Anyway, this galactic screwup by usually-slick banker lawyers gives us a rare peek into the internal mindset of these companies, and their attitude toward regulations, the markets, even their own clients. The fact that they wanted to keep all of this information sealed is not surprising, since it’s incredibly embarrassing stuff, if you understand the context.More to come: until then, here’s the motion, and pay particular attention to pages 14-19.
Good evening Ladies and Gentlemen:
Gold closed down by $20.60 to $1536.20. The price of silver also fell by 88 cents to $27.17.
Gold tumbled with this announcement:
Gold Tumbles Into Bear Market on Concern Greece May Leave Euro
The gold and silver markets were fast today as prices were basically all over the board.
We heard today that Greece will no longer receive money to recapitalize its banks mainly because that money has already been sent down to Greece and spent on other things. You have to just love the Greeks.
They are just toying with the European authorities as they know a sovereign default in Greece will set up contagion like effects to other peripheral European nations. The Greek authorities have set June 17.2012 as the election day. In physical news we witnessed that Soros quadrupled his investment in gold through the GLD. Gold has also entered into a front end backwardation which will be discussed by Ken Weiner.
Also for the first time, the Japanese pension fund has decided to purchase gold !
and articles of note include .....
Throughout the night from Europe we learned that it is inevitable that a Greek exit from the euro will be forthcoming. The Dutch newspaper Daglad claimed that the ECB has slowly turned off the liquidity button for Greece. In January, Greek banks had received 73 billion euros in liquidity support but now it is down by half or roughly 35 billion euros. The ECB demanded that 25 billion euros was meant to support bank restructuring but Greece has been holding off on that. The funds that was meant to support this function has of course been dissipated for other uses. This sent the Eur/USA cross to below the 1.27 to one mark. The peripheral bonds of Spain and Italy rose in yield but has since come back to where they started the day. The only real problem child today is Portugal which saw its bond yields skyrocket to almost 12% on the 10 yr bond.
The new Greek elections will be held on the 17th of June. There will be a caretaker government in the meantime.
The French and German bond auction went extremely well as many are seeking these two nations as safe havens. I can understand Germany but France?
(courtesy zero hedge)
The French and German bond auction went extremely well as many are seeking these two nations as safe havens. I can understand Germany but France?
(courtesy zero hedge)
Overnight Sentiment: More Of The Same
- 10 Year Bond
- Bank Run
- Bond
- European Central Bank
- France
- Germany
- Greece
- Lloyds
- Newspaper
- Portugal
- Reuters
Overnight: just more of the same, as markets collapsed, first in Asia, then in Europe, on ever more concerns what a Greek exit would do to Europe. The most important story of the night was a report in Dutch Dagblad claiming that ECB has turned off the tap for Greek bank liquidity: "At the end of January, Greek banks had received EUR73 billion in liquidity support from the ECB, but this amount has dropped by more than 50% now, according to the newspaper. The ECB is cutting back support because Greece has been holding off on recapitalizing its banking system, despite receiving EUR25 billion in funds for that purpose, the paper says." Whether this move is to force Greece to blink (even more) by making the previously reported bank run even more acute, or just general European stupidity, is unclear but it is certain to make the funding stresses across all of Europe far more acute. The news sent all peripheral bond yields soaring, and the EURUSD tumbling to under 1.27 briefly.
* * * *
and.....
(courtesy Moody's/AFP)
Moody's expected to downgrade 21 Spanish banks: AFP noted that the Spanish economic daily Expansion cited sources on Wednesday who said that Moody's is set to "significantly downgrade" 21 Spanish banks within a week. Recall that on Monday, Moody's cut the ratings of 26 Italian banks by one to four notches. The ratings cuts were part of Moody's ongoing review of European and global banks.
and.....
Here is this author's take on what is happening in Greece right now.
(courtesy Joe Martin/JWMJR)
Third scenario, same as above plus they throw he crooked bankers and politicians in jail. This would perhaps be the most interesting, as the EC would have little choice but put even more crushing economic sanctions in place and perhaps even threaten military action. This of course is the banking elites ultimate answer to any financial crises of their own making, war. But it also would expose the dirty little realty that their concern all along has not been to rescue Greece but to protect the banks. Question would then be where would the EC get the authority never mind the troops to pull this off? The UK? Not likely, its military is but a shadow of it former self. France? The French don’t want to work never mind go to war. Germany? The last thing they would do is put themselves in the position of being seen as starting a third European war. As the only remaining highly productive economy in Europe they would ditch the Euro themselves, take their losses, and wish the rest of Europe good luck. They have already begun setting up their own capital reserves for just such an event.
In short the end game for the Euro experiment draws neigh. The bankers and politicians my have a few more accounting tricks and delaying tactics up their sleeves but even that well is beginning to run dry. Anybody who tells you that the US or the rest of the can escape this disaster with “minimal” damage is either lying through their teeth or has not the first idea o what they are talking about.
(courtesy Joe Martin/JWMJR)
And Now We Return To Our Grecian Saga.
While the French voters decided to swap a closet socialist for a hypocritical hard core socialist, not a whole lot of mention was given on this side of the pond on what an absolute disaster the Greek elections were that were held the same day. The results produced such a fractured Parliament that no coalition government can be formed and there will have to be another round of elections. Meanwhile it was announced yesterday that Greece would indeed be making a €430 million payment on previous bonds that they thought they were going to skate out of with the last refinancing and 70% haircut deal. The pressure applied to force Greece to make these payments must have been tremendous, as had they not done so there would have been no way to prevent the triggering of the related CDS. Where exactly Greece came up with all that money has yet to be revealed. Small wonder that bank runs started in earnest yesterday, with Greek citizens withdrawing upwards of €900 million in a single day.
For right now the Troika of the EC, ECB and the IMF are perfectly happy for there to be no seated government in Athens, It allows them to keep looting Greece’s physical assets at rock bottom prices. But what happens when a government is seated? After a year or so of ignoring the possibility, the reality is beginning to sink in even with the American press that Greece my default on its debt. As of yet little or nothing can be found in so-called mainstream sources about what the options are or the real implications.
Does Greece seek a “organized” default, leaving the Euro and returning to the Drachma, coupled with some sort of a new debt reorganization, thus attempting to avoid a “credit event,” i.e. pump even more money into an already failed system?
Do they simply unilaterally leave the Euro, default and hope that after a couple of years of pain and chaos that growth will return and Europe will return to doing business with them in the financial markets?
Do they go the Icelandic route, default on the debt, and throw the crooked bankers and politicians that got them into the mess in jail?
There can be no doubt that right now the Troika would prefer some sort of orderly withdrawal and re-accommodation on the Greek debt. But even this is fraught with uncertainty as there would be nothing to prevent Portugal, Ireland, Spain and Italy then standing up and demanding the same accommodations. Problem is that there’s not enough cash in any of the various facilities set up by the EC and the ECB to do it, not even close. And after this weeks local elections in Germany where Chancellor Merkel’s CDU party got stomped, it’s pretty clear that the German electorate is not going to put up with their savings being used to bailout the profligacy of the PIIGS any more. End Game in this scenario? CDS get triggered, European and some U.S banks collapse, then the European Central Banks and the US Federal Reserve have no choice but to print up the losses. Commodity prices begin to soar, then retail prices, and then bank runs that will make Greece’s €900 million run look like a child’s game.
For right now the Troika of the EC, ECB and the IMF are perfectly happy for there to be no seated government in Athens, It allows them to keep looting Greece’s physical assets at rock bottom prices. But what happens when a government is seated? After a year or so of ignoring the possibility, the reality is beginning to sink in even with the American press that Greece my default on its debt. As of yet little or nothing can be found in so-called mainstream sources about what the options are or the real implications.
Does Greece seek a “organized” default, leaving the Euro and returning to the Drachma, coupled with some sort of a new debt reorganization, thus attempting to avoid a “credit event,” i.e. pump even more money into an already failed system?
Do they simply unilaterally leave the Euro, default and hope that after a couple of years of pain and chaos that growth will return and Europe will return to doing business with them in the financial markets?
Do they go the Icelandic route, default on the debt, and throw the crooked bankers and politicians that got them into the mess in jail?
There can be no doubt that right now the Troika would prefer some sort of orderly withdrawal and re-accommodation on the Greek debt. But even this is fraught with uncertainty as there would be nothing to prevent Portugal, Ireland, Spain and Italy then standing up and demanding the same accommodations. Problem is that there’s not enough cash in any of the various facilities set up by the EC and the ECB to do it, not even close. And after this weeks local elections in Germany where Chancellor Merkel’s CDU party got stomped, it’s pretty clear that the German electorate is not going to put up with their savings being used to bailout the profligacy of the PIIGS any more. End Game in this scenario? CDS get triggered, European and some U.S banks collapse, then the European Central Banks and the US Federal Reserve have no choice but to print up the losses. Commodity prices begin to soar, then retail prices, and then bank runs that will make Greece’s €900 million run look like a child’s game.
Second scenario, Greece simply walks away, tells the Troika to pound sand and they will revert to the Drachma and deal with the pain for a couple of year before growth can begin again. End Game for this scenario? Same as above, only worse, as the failure of the CDS could trigger the collapse of a large portion of the rest of the $1 Quadrillion of worthless derivatives.
Third scenario, same as above plus they throw he crooked bankers and politicians in jail. This would perhaps be the most interesting, as the EC would have little choice but put even more crushing economic sanctions in place and perhaps even threaten military action. This of course is the banking elites ultimate answer to any financial crises of their own making, war. But it also would expose the dirty little realty that their concern all along has not been to rescue Greece but to protect the banks. Question would then be where would the EC get the authority never mind the troops to pull this off? The UK? Not likely, its military is but a shadow of it former self. France? The French don’t want to work never mind go to war. Germany? The last thing they would do is put themselves in the position of being seen as starting a third European war. As the only remaining highly productive economy in Europe they would ditch the Euro themselves, take their losses, and wish the rest of Europe good luck. They have already begun setting up their own capital reserves for just such an event.
In short the end game for the Euro experiment draws neigh. The bankers and politicians my have a few more accounting tricks and delaying tactics up their sleeves but even that well is beginning to run dry. Anybody who tells you that the US or the rest of the can escape this disaster with “minimal” damage is either lying through their teeth or has not the first idea o what they are talking about.
and....
I know you will enjoy this one where accidentally released papers show that Goldman Sachs and others were engaged in the illegal naked shorting of shares. They are still doing it as they massively short gold /silver equities to raise cash. Nobody says anything because the clearing house, the DTCC is owned by JPMorgan and banking friends:
Now, however, through the magic of this unredacted document, the public will be able to see for itself what the banks’ attitudes are not just toward the "mythical" practice of naked short selling (hint: they volubly confess to the activity, in writing), but toward regulations and laws in general."Fuck the compliance area – procedures, schmecedures," chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.
We also find out here how Wall Street professionals manipulated public opinion by buying off and/or intimidating experts in their respective fields. In one email made public in this document, a lobbyist for SIFMA, the Securities Industry and Financial Markets Association, tells a Goldman executive how to engage an expert who otherwise would go work for "our more powerful enemies," i.e. would work with Overstock on the company’s lawsuit.
"He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding," the lobbyist writes, "while resistance results in isolation."There are even more troubling passages, some of which should raise a few eyebrows, in light of former Goldman executive Greg Smith's recent public resignation, in which he complained that the firm routinely screwed its own clients and denigrated them (by calling them "Muppets," among other things).Here, the plaintiff’s motion refers to an "exhibit 96," which refers to "an email from [Goldman executive] John Masterson that sends nonpublic data concerning customer short positions in Overstock and four other hard-to-borrow stocks to Maverick Capital, a large hedge fund that sells stocks short."
Was Goldman really disclosing "nonpublic data concerning customer short positions" to its big hedge fund clients? That would be something its smaller, "Muppet" customers would probably want to hear about.
When I contacted Goldman and asked if it was true that Masterson had shared nonpublic customer information with a big hedge fund client, their spokesperson Michael Duvally offered this explanation:
Among other services it provides, Securities Lending at Goldman provides market color information to clients regarding various activity in the securities lending marketplace on a security specific or sector specific basis. In accordance with the group's guidelines concerning the provision of market color, Mr. Masterson provided a client with certain aggregate information regarding short balances in certain securities. The information did not contain reference to any particular clients' short positions.You can draw your own conclusions from that answer, but it's safe to say we'd like to hear more about these practices.
Anyway, the document is full of other interesting disclosures. Among the more compelling is the specter of executives from numerous companies admitting openly to engaging in naked short selling, a practice that, again, was often dismissed as mythical or unimportant.
A quick primer on what naked short selling is. First of all, short selling, which is a completely legal and even beneficial activity, is when an investor bets that the value of a stock will decline. You do this by first borrowing and then selling the stock at its current price, then returning the stock to your original lender after the price has gone down. You then earn a profit on the difference between the original price and the new, lower price.
What matters here is the technical issue of how you borrow the stock. Typically, if you’re a hedge fund and you want to short a company, you go to some big-shot investment bank like Goldman or Morgan Stanley and place the order. They then go out into the world, find the shares of the stock you want to short, borrow them for you, then physically settle the trade later.But sometimes it’s not easy to find those shares to borrow. Sometimes the shares are controlled by investors who might have no interest in lending them out. Sometimes there’s such scarcity of borrowable shares that banks/brokers like Goldman have to pay a fee just to borrow the stock.
These hard-to-borrow stocks, stocks that cost money to borrow, are called negative rebate stocks. In some cases, these negative rebate stocks cost so much just to borrow that a short-seller would need to see a real price drop of 35 percent in the stock just to break even. So how do you short a stock when you can’t find shares to borrow? Well, one solution is, you don’t even bother to borrow them. And then, when the trade is done, you don’t bother to deliver them. You just do the trade anyway without physically locating the stock.
Thus in this document we have another former Merrill Pro president, Thomas Tranfaglia, saying in a 2005 email: "We are NOT borrowing negatives… I have made that clear from the beginning. Why would we want to borrow them? We want to fail them."
Trafaglia, in other words, didn’t want to bother paying the high cost of borrowing "negative rebate" stocks. Instead, he preferred to just sell stock he didn’t actually possess. That is what is meant by, "We want to fail them." Trafaglia was talking about creating "fails" or "failed trades," which is what happens when you don’t actually locate and borrow the stock within the time the law allows for trades to be settled.
If this sounds complicated, just focus on this: naked short selling, in essence, is selling stock you do not have. If you don’t have to actually locate and borrow stock before you short it, you’re creating an artificial supply of stock shares.
In this case, that resulted in absurdities like the following disclosure in this document, in which a Goldman executive admits in a 2006 email that just a little bit too much trading in Overstock was going on: "Two months ago 107% of the floating was short!"
In other words, 107% of all Overstock shares available for trade were short – a physical impossibility, unless someone was somehow creating artificial supply in the stock.
Goldman clearly knew there was a discrepancy between what it was telling regulators, and what it was actually doing. "We have to be careful not to link locates to fails [because] we have told the regulators we can’t," one executive is quoted as saying, in the document.One of the companies Goldman used to facilitate these trades was called SBA Trading, whose chief, Scott Arenstein, was fined $3.6 million in 2007 by the former American Stock Exchange for naked short selling.
The process of how banks circumvented federal clearing regulations is highly technical and incredibly difficult to follow. These companies were using obscure loopholes in regulations that allowed them to short companies by trading in shadows, or echoes, of real shares in their stock. They manipulated rules to avoid having to disclose these "failed" trades to regulators.How they did this is ingenious, elaborate, and complex, and we’ll get into it more at a later date. In the meantime, this document all by itself shows numerous executives from companies like Goldman Sachs Execution and Clearing (GSEC) and Merrill Pro talking about a conscious strategy of "failing" trades – in other words, not bothering to locate, borrow, and deliver stock within the time allotted for legal settlement. For instance, in one email, GSEC tells a client, Wolverine Trading, "We will let you fail."
More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to "short an impossible name and fully expecting not to receive it" he would then be "shocked to learn that [Goldman’s representative] could get it for us."
Meaning: when an experienced hedge funder wanted to trade a very hard-to-find stock, he was continually surprised to find that Goldman, magically, could locate the stock. Obviously, it is not hard to locate a stock if you’re just saying you located it, without really doing it.
As a hilarious side-note: when I contacted Goldman about this story, they couldn't resist using their usual P.R. playbook. In this case, Goldman hastened to point out that Overstock lost this lawsuit (it was dismissed because of a jurisdictional issue), and then had this to say about Overstock:
Overstock pursued the lawsuit as part of its longstanding self-described "Jihad" designed to distract attention from its own failure to meet its projected growth and profitability goals and the resulting sharp drop in its stock price during the 2005-2006 period.Good old Goldman -- they can't answer any criticism without describing their critics as losers, conspiracy theorists, or, most frequently, both.
Anyway, this galactic screwup by usually-slick banker lawyers gives us a rare peek into the internal mindset of these companies, and their attitude toward regulations, the markets, even their own clients. The fact that they wanted to keep all of this information sealed is not surprising, since it’s incredibly embarrassing stuff, if you understand the context.More to come: until then, here’s the motion, and pay particular attention to pages 14-19.
No comments:
Post a Comment