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According to the Collins English Dictionary 10th Edition fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage".[1] In the broadest sense, a fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by legal jurisdiction. Fraud is a crime, and also a civil law violation. Defrauding people or entities of money or valuables is a common purpose of fraud, but there have also been fraudulent "discoveries", e.g. in science, to gain prestige rather than immediate monetary gain
*As defined in Wikipedia

Tuesday, September 15, 2009

Goldman Pillages, Goldman Steals, Goldman Sachs

Judd Bagley over at Market Rap dissects the short selling crisis:


This scenario is consistent with the levels of naked short selling of Lehman and Goldman during the same period: extremely high in the case of Lehman, and almost non-existent in the case of Goldman; furthermore, this suggests that, given abusive naked shorting does not tend to occur until after short sellers have exhausted the supply of borrowable shares, it was legitimate shorting that pushed Goldman’s share price over the edge.

With that in mind, let’s revisit the above timeline, focusing on Goldman, with my interpretation appended.

* September 15: Lehman declares bankruptcy. Goldman Sachs share price begins to fall. Following the destruction of Lehman Brothers at the hands of short selling hedge funds, the financial world is keenly aware of the capacity of naked shorting to decimate the share prices of financial firms. Furthermore, given the role Goldman undoubtedly played as broker in the criminal short selling hedge funds’ attack Lehman, the firm is justifiably concerned that the karma train is heading its way.
* September 16: Goldman lobbies its extremely well-placed (and well-documented) federal government contacts for a temporary ban on naked short selling.
* September 17: The SEC temporarily bans naked short selling.
* September 18: Despite the ban on naked shorting, Goldman Sachs’ share price continues to fall, suggesting legitimate short selling, not illegal naked short selling, is the cause of Goldman’s problems. Goldman lobbies for the SEC to temporarily ban legitimate shorting.
* September 19: The SEC temporarily bans legitimate shorting of all financial stocks. Goldman’s share price rises.

Might the SEC have been acting in the best interest of the market when it issued both emergency orders? I suppose that’s possible. But given the utter disinterest – even contempt – that organization has demonstrated toward investors and small public companies that have complained about the issue, I find it very difficult to believe.


Read the full story here


Anonymous said...

I always thought it was John Mack of Morgan Stanley who requested the ban on short selling. As I remember he went to Congress to ask for it.

Mike said...

Very interesting discussion and depiction of the events. I think this example lends evidence to my personal belief that it is difficult for anyone type of traders, except for large institutions, to consistently make money on the short side. There are too many uncertainties and too much govt interference that create a lot of additonal risk. Instead, I feel that for those who prefer to manage their own money, that they remain in most cash and gold. The Fed has made clear its efforts to try to prevent deflation from occurring, and in doing so it has created the most easy money policy of all time. I recently read some good discussions on these topics at which provide some useful articles on the Fed's policies and the potential impact on the gold price, the dollar, and the global economy. There are many important issues for the overall financial system as a result of the Fed's money printing and currency debasement.

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