Short Selling, Rogue Hedge Funds, The SEC, And Captured Regulators
In the fall of 2008 short selling, and proposed restrictions thereof, again became a "hot topic" that made headlines for weeks. At the bottom of this page we have linked to an excellent sound powered slide presentation explaining the problems with short selling, rogue hedge funds and "captured regulators" within the still-unfolding crisis which catapulted into the pubic domain in 2008.
However, for many ordinary observers, short selling must seem to be part of the incomprehensible panoply of "modern" financial innovations such as "collateralized debt obligations" (or CDOs) and "credit default swaps" (or CDSs) and more.
How strange it may be then to learn that Charles Lindberg Sr. (U.S. Congressman and father of the famous aviator) wrote about short selling in 1913. Here is a portion of a chapter of his book in which he uses the practice of short selling to then describe the more comprehensive and parallel problem of creating money as debt:
We hear many objections against short selling, going short in the sales of stocks, securities, grain, provisions, etc., on the market. Short selling means the selling of what the vendor does not possess. In Congress there is pending at all times one or more bills purposed to prohibit this practice. There is, at the present time, serious consideration of passing a bill which will prohibit all short selling, because it is claimed that practice enables speculators to manipulate the market in a manner that makes it possible for them to pay the producers less and charge the consumers more. This short selling is a much more comprehensive affair than the sponsors of the bills referred to have allowed the public to gather...
It is from the practice of short selling that the bankers derive the greatest profits. . . It will surprise many . . . but the banker, as well as others, will admit of its truth when they have fully considered it. If a person were to sell a thousand bushels of wheat or ten shares of stock that he does not own, it becomes necessary for him to go into the market and buy it at the time that he is required to deliver it to the purchaser. Ordinarily the purchaser on the stock or produce market does not require the vendor to do that, but settles with him for whatever the actual market price is at the time of final settlement. The banker is doing the same thing with the dollar.
All of the money in all of the banks and trust companies is [in 1913]only slightly in excess of a billion and a half dollars and the banks owe approximately twenty billion dollars. There is not enough money in all their vaults to pay one-tenth of what they owe. There is not enough money in the whole country . . .it is clear that the banks are sold short just as effectively as the stock and grain gambler. . .
The banks should not be condemned for this, however, because it is the only way in which the business of the country can be carried on under the present system . . .
Every student who has carefully studied this subject knows that the people, as a whole, which includes themselves as individuals, the General Government, the states and municipalities, cannot pay interest on all of the money that they have agreed to pay. That is because money does not create itself. It is claimed that everyone who has a dollar and loans it out is entitled to interest. It takes one dollar to furnish the exact equivalent of another dollar. It takes a dollar to pay a dollar debt, and, since that is true, there are no dollars left with which to pay the interest. The whole country has sold money short and could not possibly deliver or pay the money it has agreed to pay. . . . The annual interest alone, contracted to be paid on these obligations, probably exceeds all of the money in existence. Of course, some of this interest is paid from other interest collected and is offset . . . but the greater part of it still remains to be made up from other sources.
The only way that interest can be liquidated, considering the statement in its general application, is by transfer of the property or the services of the debtor class to the creditor class. But all interest cannot be paid in full even in that way . . .the geometrical progression of computing interest accumulates . . .The whole country is sold short by the debtors who have agreed to pay what they have not, and what they cannot get. The creditors have a corner on us. How are they enforcing settlements? It is being done in several ways. We are compelled to work more hours per day, receive less pay per hour, pay more for what we buy, and receive less for what we sell. . . This means absolute destitution for great numbers . . . (pp90-93)
We can bring ourselves up-to-date on the subject of short selling with
The Dark Side of the Looking Glass, an excellent powered sound slide presentation on the Corruption of Our Capital Markets, focusing on rogue hedge funds, short selling, "captured" regulators, the SEC and the resulting problems of "dispersed costs" and "concentrated benefits".
Several documents are offered which show that short selling is a major conduit for market manipulation, just as Congress knew in 1913. Letters and documents of SEC and other rulings and opinions are also offered which leads to the conclusion that "Fake rule of law is worse than no law at all."
Essentially, and taken in context with Lindbergh's comments above, this presentation is a brilliant, if unintended argument against a global monetary system in general and privately owned, for-profit central banking systems which are allowed to create "debt/money"in particular because money created in this way is what encourages short selling to begin with.