Where do short-sold shares come from?
Securities lending is the new media explanation, replacing "locating", which was cited by the SEC fairly recently as the actual business practice since short-sellers weren't really "borrowing" like they said they were. In "locating", a Crime Family simply tells each inquiring short-seller its wise guys have enough shares in inventory to meet his need, and mobsters keep no running total, so all the inquiries can accumulate into many more shares than actually exist. In securities lending, racketeers muscle pension fund managers and them into “loaning” shares to short-sellers or else getting slammed with higher custodial fees, all the while threatening to levy killer exit fees if managers freak and want to find a new Crime Family to get swindled by.
Getting a handle on all the explanations is like listening to the party of her part frolic through world class divorce high jinks. All one can do is try and keep up. In reality, despite what they try to say, short-sellers create brand new phony shares. It’s the same old bookkeeping entry. Credit bogus shares and debit short-seller’s cash with booty swindled from an uninformed investor. They just try and throw a second and misleading entry in too, pretending to cover up bogus with real ones short-sellers don‘t even own until the cons fold up their sting and clear out of town.
With securities lending, we’re thinking that the mob has just been collecting inquiry fees without actually getting to the part about the securities lending. We can't make sense of the "locating" explanation otherwise.
Whatever, the NY Times, which recently broke the story maybe 16 months after Forbes did, followed up with a 10/22/10 editorial. Editors only focused on losses incurred when pension fund managers “lending” shares invested the charges they collected from short-sellers “borrowing” them. Totally overlooked was the hit their pensioners took after their Bank of America shares were handed over to short-sellers at 55 and taken back at 3.
At times like this, we’re half convinced the media caused the financial meltdown all by itself. They’ve had since at least October 1929 to figure this stuff out. I mean, how difficult is it to subtract 3 from 55, and then look around for the real loss here.
The catastrophic, worldwide apocalypse rendering loss.
Concurrently, our own brokerage account was switched from one arm of a gargantuan financial institution to another arm this month, and in the process morphed from cash to margin. Without notice. Apparently margin is the default in the land of the megaliths. Margin accounts are also where the bloodsucking thieves go when they want to lend shares to short-sellers, and we called yet another of Gargantua’s countless arms to get our cash account back as soon as we saw what arm 2 was doing to us.
Anyone not trading uncovered options or selling short himself might want to make sure he has a cash account. The Forbes piece says there’s little chance of your Crime Family passing their loss along to your margin account if their securities lending business goes awry, but little is hardly no chance at all, which is where cash accounts stand, and you do agree to let the Family itself put your investments at risk by signing up for a margin account.
Besides, folks still reading our blog after all these months may not want to help short-selling thugs bludgeon their investments into smithereens.
55 down to 3. For some of us, that part is hard to forget.
“Welcome, valued customer. My name is David. How can I help you today.“
“Hi David, is my account margin or cash?”
“Margin.”
“Change it. I want a cash account, David.”
“Just takes a moment, Sir.”
That, valued readers, is all you’d have to do.
