THE GROWING GAP BETWEEN REALITY AND THE MEDIA

The Growing Gap Between Reality and the Media
February 26th, 2009 by Mark Mitchell
Following is a very partial list of people who have said abusive short selling must be stopped.

Then Secretary of Treasury Paulson

Former Chairman of SEC Harvey Pitt

Then SEC Chair Christopher Cox

Then Senator Hillary Clinton

Presidential Candidate John McCain

George Soros

The members of the American Chamber of Commerce

Charlie Munger, Vice Chairman Berkshire Hathaway

John Mack, CEO Morgan Stanley

Dick Fuld, then CEO Lehman Brothers

Members of the North American Securities Administrators Association

Robert Shapiro, former Undersecretary of Commerce

Harvey McGrath, former chairman of Man Group, world’s biggest listed hedge fund

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Following is a partial list of mainstream media outlets that have yet to deliver a single comprehensive story about abusive short selling:

The Wall Street Journal

The New York Times

The Columbia Journalism Review

BusinessWeek Magazine

The Chicago Tribune

The Los Angeles Times

Fortune Magazine

The Washington Post

CNBC Television

CNN Television

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This week, Eddie Lampert, the hedge fund manager and Chairman of Sears, became the latest to speak out against the problem. Here’s what he had to say…

“…the level of “naked” short selling of our shares was significant. The activity can be measured by the number of shares sold short as disclosed twice monthly by the NYSE and Nasdaq as well as by the reported number of instances of failure to deliver securities by short sellers to purchasers of Sears Holdings stock….

…the SEC has taken further actions to enforce “naked” short selling rules that had been in place, but not enforced, for a significant period of time. This is an important protection for shareholders and for property rights. The sale of property (shares in a corporation) that a seller does not own and can’t deliver (naked short selling) is an affront to property owners, and a destroyer of confidence and trust. Much of the commentary around short selling ignores this simple fact.

While I understand (and often appreciate) the urge to critically evaluate possible regulation, it is interesting that there has been protest by those on the short side with regard to some of the rules that have been suggested. For example, the reinstatement of the uptick rule, which would require any short sale to occur at or above the last sale price on the stock exchange. Such a rule had been in place for over 70 years (to prevent “bear raids” in which short sellers aggressively sold stock at ever lower levels, undermining confidence) until it was repealed in 2007. It has been suggested that, because stocks are now traded in decimals rather than in 1/8 point increments, such a rule is obsolete or unnecessarily difficult to implement. However, what the opponents fail to point out is that companies who repurchase their own shares are advised to adhere to a rule that forbids those companies from initiating a plus tick when repurchasing shares. Why policymakers would favor an asymmetric application of a rule like this in favor of short sales and against company repurchases is a mystery.

Similarly, the SEC has required short sales of securities to be reported periodically beginning in the second half of 2008. Short sellers have prevailed on the SEC to allow this disclosure to be done privately on the basis of a claimed need to protect their investment strategies. While I respect this privacy right, investors who purchase and own stocks, however, are afforded no such privacy in their holdings. In fact, holders of securities are required to publicly file their holdings on a quarterly basis. Such public disclosures have been known to attract the interest of short sellers when institutional investors and hedge funds have found themselves under performance or redemption pressures. Again, it is a mystery as to why those who are owners of publicly traded companies are required to disclose their holdings while those who sell short those very same securities are permitted to keep their positions private…”

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Posted in The Mitchell Report | 60 Comments »

Would CNBC Let Gasparino Say This On-Air?
February 21st, 2009 by Mark Mitchell
Charles Gasparino, the CNBC reporter, published an op-ed in The New York Post yesterday.

Here’s the interesting bit

Earlier this year, high-flying hedge fund Paulson & Co. retained [former Federal Reserve chief Alan Greenspan] for its “advisory board.” The firm is a noted “short seller” of banks and financial stocks - meaning it makes money when these companies’ shares fall.

The thing is, Greenspan is making public comments that inevitably influence public policy and the markets - and some of those comments may well have led to his clients making a nice profit.

In a recent speech to the Economic Club of New York, Greenspan said the recession would likely “be the longest and deepest” since the Great Depression and that Congress might have to allocate more money to save the beleaguered banking system on top of the billions already gone for the Troubled Asset Recovery Program.

Then he told the Financial Times: “It may be necessary to temporarily nationalize some banks in order to facilitate a swift and orderly restructuring” of their troubled balance sheets.

Such a move would wipe out stockholders, sending shares of banks even lower - thus likely benefiting Paulson. It would also protect bondholders, helping another Greenspan client, the large bond-firm Pimco.

The question is: Why didn’t Gasparino, or anybody else, say this on CNBC? Hedge fund crony Paul Kedrosky appeared on the network to criticize Greenspan’s relationship with Pimco, but there was no mention of the former Fed chairman spewing negativity for Paulson’s short selling operation.

More importantly, no proper journalist at CNBC has reported that short sellers use many other tactics (such as planting false stories on CNBC and manufacturing phantom stock) to demolish public companies and crush the markets.

At our nation’s leading business network, only Jim Cramer reports on this scandal. Only Jim Cramer tells America about one of the most important causes of the worst financial crisis since the 1930s.

He does so with funny sound effects while prancing around the Romper Room set of a program that is called “Mad Money.”

It is surreal, to say the least.