TigerSoft Freedom News Service 7/16/2008 www.tigersoft.com
News and Views you won't find in the corporate media.
revised on 7/20/08 to include discussion of "Enron Amendment".
Investing In A Perfect Storm
(Part 3)
Republican Phil Graham ("You're a nation of whiners")
created the Enron Amendment that let Enron Gouge
California Consumers in 2001 and now all US energy
users in 2008.
Spineless Democrat Harry Reid Won't Raise Margin
Requirements on Crude Oil Speculation.
Financial Institutions Gave Him More than $359,000
SEC and FED Help Wall Street Insiders at The Expense of US Economy
Beware "The Fix" at the Securities & Exchange Commission (SEC).
as Well as at The Federal Reserve Board. (Part 1 and 2)
The Biggest Buildings in Most Cities
Are Owned by Banks and Brokerages.
Financial Institutions Are The Ultimate Insiders. For Them,
It's More Important Who You Know at the FED or the SEC,
Than How Honest, Bright or Far-Sighted You Are. No Wonder
They Couldn't Even Ask The Question: "What Will Happen if
Housing Prices Decline?"
by William Schmidt, Ph.D. (Columbia University)
(C) 2008 All rights reserved. Reproducing any part of this page without
giving full acknowledgement is a copyright infringement
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Previous Related studies:
The SEC Is Not Really There To Regulate.
4/3/2008 Wall Street's Dirty Little Secret
1/8/2008 It Does A Poor Job of Stopping Insider Trading
1/3/2008 The SEC Is Slow To Challenge Heart of Wall Street's Power.
6/28/2007 Who's Guarding The Investor Hen House?
It's Real Mission Is To Help Wall Street
Insiders
8/15/2008
SEC Lifts 70-Year Ban
on Short Selling on Down-Ticks
And Lets Hedge Funds
Use Dangerous Bear Raids To Get Rich.
and
Keep The Myth of Fairness Alive,
Giving The Appearance
That Wall Street Is A Level Playing
Field for Investors
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Plunging Confidence in Wall Street:
The SEC Is A Big Part of The Problem
by William Schmidt, Ph.D
At the end of June 2007, before the market plunged,
the SEC, without legislative authority, broke the 1934 law
that created it, and cavalierly lifted the 73 year ban on
short selling on down-ticks. The law was designed to
prevent rigged bear markets, created by wealthy insiders
who would create bad news, spread false negative rumors
and mercilessly sell the stock down to create a selling panic.
The 1929-1933 experience had taught that generation that
this practice had to be banned. It was socially too
destructive and dangerous. Bush's SEC did not care
about such concerns. They wanted to make their Wall
Street constituents more money. Let the companies
and their employees suffer and risk bankruptcy. They
just didn't care. What's the difference between the SEC
and Bush and Cheney? They just didn't care about the
consequences. They wanted simply to repay their sponsors.
So, the SEC caved into the relentless pressure
from Wall Street insiders who could see the top coming
and who wanted to be able to sell short easily and
aggressively, without waiting for an up-tick. Three weeks
after the SEC allowed short selling on downticks, the
DJI peaked and started down. It fell more than 20%
until yesterday's rally, which the SEC prompted. See the chart below.
Why Has SEC Allowed Naked Short Selling So Long?
Yesterday, July 16, 2008, the SEC decided that
the biggest financial stocks had to be protected from
the merciless selling caused by the banks' poor judgement
in making too many bad mortgage loans and being vastly
over-leveraged. Finance stocks have been ravaged
after the Housing Bubble broke wide open in 2007-2008.
So, the SEC acted to protect their buddies in these banks.
It ruled Wednesday, that for a month 18 of the biggest banks
could no longer have their stocks sold short "naked".
Naked short selling means that the stock is sold short
aggressively without any existing shares having to be
first borrowed. Naked short selling is necessary to
conduct a bear raid. Many existing shareholders do not
keep their shares in margin accounts, where they can be
borrowed. So, stock to borrow to sell short can become
quite limited. To surmount this problem, short sellers break
the rules that require stock to be borrowed before it can
be sold short. Such violations have been growing. The
SEC took a very lax view of the practice. It has refused
to penalize brokerages for breaking the existing rules
against naked short selling. You can understand that
day traders, in particular, who sell short at the opening,
or during the day, using only 25% margin, and then cover
their shorts by the end of the day, need a ready supply of
stock to sell short. Allowing naked short sales does away with
problem and takes brokerage firms off the hook for searching
for shares to borrow.
The SEC Itself Engaged in Insider Trading
Insiders, before the announcement, got prior word
two days ago that the Securities & Exchange Commission
would announce before the opening the next day that
they would ban "naked" short sales in key finance stocks.
Today many of these stocks jumped 20% or 30%, in just
one day.
What's the proof? Look at the chart below. The very,
very high volume after the long decline with side-wise price
action was the key to spotting the insider buying, When you
have friends at the SEC who tell you what they are going to
do next, you don't have to be smart, just well connected.
It means that you're earning it the old fashioned way, being
one the boys on the inside. No wonder, wealth is concentrated
in Wall Street not among the brightest, bravest and most
foresighted, but among those who break the insider
laws with impunity. Look at TigerSoft's chart of Financial
Stocks. Note the Buy signal the day before the rally and the
huge jump in trading without additional price weakness.
This was "high volume churning" at a key reversal point.
--------- Tiger Index of Financial Stocks ------------
Clearly naked short selling should be
banned altogether.
It leads to economically destructive bear raids that have the power
to wipe out whole companies and cause great economic
hardship among shareholders and employees whose
jobs are ended. But the Bush SEC has not wanted to
do the right thing, and ban naked short selling altogether.
It has been too afraid to offend the constituents is cares
most about. It has not wanted to reduce or limit the big
brokerage commissions and profits at influential hedge funds
and the big firms' day trading teams.
--------- DJIA - 2007-2008
----------
SEC lifts
ban on short
sales.
Naked Short Selling
DJI falls
22%
Energy prices have tripled in the last
two years.
Initial Margin requirements on energy futures' contracts
are just 5%, even though the margin requirements for
stocks are 50%. The commodities are just as volatile
as stocks. Why are they so low? Because the two
governing units of the Federal Government, the SEC
and the Federal Reserve Board have been much more
protective of the commodity trading firms and funds,
than public welfare. Look at the price of Crude Oil.
Insider were clearly buying it, tightening their control
of it. The Federal Reserve did nothing to stop the upswing.
It had the power to limit the rise by raising margin requirement,
but it chose not to do so.
Energy Price Manipulation and California Blackouts
Commodities markets have become increasingly
unregulated.
90 percent of all commodities trades occur
outside
of the traditional marketplace exchanges. In these
so-called
OTC “Swaps trades”, parties secretly buy and
sell
commodities with absolutely no one watching. Speculation
can
be intense. Manipulation is much more common. Oil futures
can
be "cornered" without anyone knowing. The Enron
Amendment
of 2001 effectively hid OTC trades in commodity
futures
so that manipulators could escape regulation and
gouge
consumers. It was designed by Phil Graham to
help
Enron gouge consumers. It worked. Traders for Enron
were
artificially able to drive up electrical power futures in
California.
Energy prices rose 50% in a few months. Pacific
Gas
& Electric went bankrupt.
Traders
said that Enron's former president, Jeff Skilling,
pushed
them to "trade aggressively" in California and to do
whatever
was necessary to take advantage of the state's
wholesale
market to boost the price of Enron's stock/ "Skilling
would
say, 'if you can't do that then you need to find a job at
another
company,'" said one former senior Enron trader...
"He
said we should go trade pork bellies if we can't be
aggressive."
Manipulation strategies were known to energy
traders
under names such as "Fat Boy", "Death Star",
"Forney
Perpetual Loop", "Ricochet", "Ping Pong",
"Black
Widow", "Big Foot", "Red Congo", "Cong Catcher"
and
"Get Shorty".[6]
Source.
For fuller description, see
http://en.wikipedia.org/wiki/California_electricity_crisis
Is
the same thing is happening in the Mid-Atlantic
states?
states.
." 
As in California,
the
energy companies blamed heat waves. But the absence of regulating by the
Federal
Energy Regulatory Commission is strikingly
similar in both cases.
ider Accumulation is Very Obvious in TigerSoft
Crude Oil Charts
Democrats Again Show How
Spineless They Are.
"The Best That Money Can Buy"
 Harry Reid, Senate Majority Leader. |
Biggest
Campaign Contributors
|
A timid US Senate is taking up the issue. A month
ago Democrat Byron Durgon introduced legislation that
would compel the commodity regulators at the CFTC to
raise initial margin requirements from 5% to 25% for
speculators, as opposed to commercial hedgers like
airlines. Walter L. Lukken, the CFTC's acting chairman,
drew criticism at the time for not responding more quickly
and wanting to waste time studying the proposal. Since then,
the spineless Democratic leadership and Senator
Harry Reid, in particular, has chosen to leave the
proposal out completely an require the CFTC to study the
problem. "I have seen sick jellyfish with more spine",
said one disgusted observer.
Republican Phil Graham's "Enron Amendment"
Gramm
was one of five co-sponsors of the Commodity Futures Modernization
Act of 2000[3].
One provision of the bill was referred to as the "Enron loophole"
because
Gramm drafted it in cooperation with lobbyists for Enron Corporation. Critics
blame
the provision for permitting the Enron scandal to occur.[4] At the
time, Gramm's
wife
was on Enron's board of directors.
The "Enron loophole" exempts most over-the-counter energy trades
and
trading on electronic energy commodity markets from government
regulation.
The "loophole"
is so-called
as
it was drafted by Enron
Corporation lobbyists working with U.S. Senator Phil Gramm to
create
a deregulated
market for their experimental "Enron On-line" initiative.
It
allowed for the creation, for U.S. exchanges, of a new kind of derivative security,
the
single-stock future, which had been prohibited since 1982
under the Shad-Johnson Accord,
a
jurisdictional pact between John S.R. Shad, then chairman of the U.S. Securities and
Exchange
Commission,
and Phil Johnson, then chairman of the Commodity Futures Trading Commission.
It is clear that the Fed
and the SEC have the power
to make and break a bull market and stop a bubble.
It is not only with interest rates that they can change
the outlook for stocks. But special interests rule
Washington.
Want To Predict The Market? Watch The Federal Reserve
and The SEC Closely as They Change Rules for Margining
Stocks and Short Selling. One of
the common causes of the
Stock Market Bubble of the 1920s and the Housing Bubble of
the 2000s was the very low amount of money one had to
put down to buy a stock or a house.
In 1934, the SEC was charged with
preventing short sales
on down-ticks and the Federal Reserve was given power to
change interest rates and margin requirements.
Initial Margin Requirement Changes Have Been Rare Recently
But you can get an idea from some of the examples shown
below that this is a powerful tool.
1) Margin Requirements were raised from 50% to 70%
on August 1958. It took more than 10 months for the
DJI to top out after margin requirements were raised.
But the market went down significantly in 1960.
DJI - 1958-1959
DJI - 1959-1960
2) June 1968, the margin
requirements were raised from
40% to 50% to fight excessive speculation in lower priced
stocks. In six months the stock market was falling from
984 to a low of 540 in May 1970.
-------------- DJI 1970 -------------
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