So Not Shocking

Matt Taibbi is looking at documents from the Overstock.com case against the banksters, and discovers some remarkably informative unintentional release of information:

The lawyers for Goldman and Bank of America/Merrill Lynch have been involved in a legal battle for some time – primarily with the retail giant Overstock.com, but also with Rolling Stone, the Economist, Bloomberg, and the New York Times. The banks have been fighting us to keep sealed certain documents that surfaced in the discovery process of an ultimately unsuccessful lawsuit filed by Overstock against the banks.

Last week, in response to an Overstock.com motion to unseal certain documents, the banks’ lawyers, apparently accidentally, filed an unredacted version of Overstock’s motion as an exhibit in their declaration of opposition to that motion. In doing so, they inadvertently entered into the public record a sort of greatest-hits selection of the very material they’ve been fighting for years to keep sealed.+

………

The lawsuit between Overstock and the banks concerned a phenomenon called naked short-selling, a kind of high-finance counterfeiting that, especially prior to the introduction of new regulations in 2008, short-sellers could use to artificially depress the value of the stocks they’ve bet against. The subject of naked short-selling is a) highly technical, and b) very controversial on Wall Street, with many pundits in the financial press for years treating the phenomenon as the stuff of myths and conspiracy theories.

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.

“F%$# 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.

(%$# mine)

Here's the nickel version.

Short selling works as follows:

• Locate the requisite shares of stocks.
• Borrow them (and pay a fee).
• Sell the borrowed shares.
• Wait.
• Buy shares, and return to borrower.

If the share price falls in the interim, you make money.

If it rises, you lose money.

Fairly simple and straightforward, and legal.

What isn't legal is naked shorting, where you sell the shares, but have never borrowed them.

At one point, because of naked shorts, 107% of all outstanding shares were for sale, with the obvious effect of depressing the stock price (supply and demand), which pretty much guarantees a profit by short sellers, and you do not have to pay fees to borrow the stock.

It's a win-win for everyone, except of course, the poor dupes who think that they won't get ripped off by the banksters when they try to invest.