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Wednesday, May 16, 2012
Anti-Naxal ops: CRPF seeks AFSPA cover for troops | Business Standard
Anti-Naxal ops: CRPF seeks AFSPA cover for troops | Business Standard:
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FOCUS | 'Naked Short Selling' - Matt Taibbi, Rolling Stone
FOCUS | 'Naked Short Selling':
t doesn’t happen often, but sometimes God smiles on us. Last week, he smiled on investigative reporters everywhere, when the lawyers for Goldman, Sachs slipped on one whopper of a legal banana peel, inadvertently delivering some of the bank’s darker secrets into the hands of the public.
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'Naked Short Selling'
16 May 12
t doesn’t happen often, but sometimes God smiles on us. Last week, he smiled on investigative reporters everywhere, when the lawyers for Goldman, Sachs slipped on one whopper of a legal banana peel, inadvertently delivering some of the bank’s darker secrets into the hands of the public.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.
I contacted Morgan Lewis, the firm that represents Goldman in this matter, earlier today, but they haven’t commented as of yet. I wonder if the poor lawyer who FUBARred this thing has already had his organs harvested; his panic is almost palpable in the air. It is both terrible and hilarious to contemplate. The bank has spent a fortune in legal fees trying to keep this material out of the public eye, and here one of their own lawyers goes and dumps it out on the street.
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.
“Fuck 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.
“He should be someone we can work with, especially if he sees that cooperation results in resources, both data and funding,” the lobbyist writes, “while resistance results in isolation.”
There are even more troubling passages, some of which should raise a few eyebrows, in light of former Goldman executive Greg Smith's recent public resignation, in which he complained that the firm routinely screwed its own clients and denigrated them (by calling them "Muppets," among other things).
Here, the plaintiff’s motion refers to an “exhibit 96,” which refers to “an email from [Goldman executive] John Masterson that sends nonpublic data concerning customer short positions in Overstock and four other hard-to-borrow stocks to Maverick Capital, a large hedge fund that sells stocks short.”
Was Goldman really disclosing “nonpublic data concerning customer short positions” to its big hedge fund clients? That would be something its smaller, “Muppet” customers would probably want to hear about.
When I contacted Goldman and asked if it was true that Masterson had shared nonpublic customer information with a big hedge fund client, their spokesperson Michael Duvally offered this explanation:
Among other services it provides, Securities Lending at Goldman provides market color information to clients regarding various activity in the securities lending marketplace on a security specific or sector specific basis. In accordance with the group's guidelines concerning the provision of market color, Mr. Masterson provided a client with certain aggregate information regarding short balances in certain securities. The information did not contain reference to any particular clients' short positions.
You can draw your own conclusions from that answer, but it's safe to say we'd like to hear more about these practices.
Anyway, the document is full of other interesting disclosures. Among the more compelling is the specter of executives from numerous companies admitting openly to engaging in naked short selling, a practice that, again, was often dismissed as mythical or unimportant.
A quick primer on what naked short selling is. First of all, short selling, which is a completely legal and often beneficial activity, is when an investor bets that the value of a stock will decline. You do this by first borrowing and then selling the stock at its current price, then returning the stock to your original lender after the price has gone down. You then earn a profit on the difference between the original price and the new, lower price.
What matters here is the technical issue of how you borrow the stock. Typically, if you’re a hedge fund and you want to short a company, you go to some big-shot investment bank like Goldman or Morgan Stanley and place the order. They then go out into the world, find the shares of the stock you want to short, borrow them for you, then physically settle the trade later.
But sometimes it’s not easy to find those shares to borrow. Sometimes the shares are controlled by investors who might have no interest in lending them out. Sometimes there’s such scarcity of borrowable shares that banks/brokers like Goldman have to pay a fee just to borrow the stock.
These hard-to-borrow stocks, stocks that cost money to borrow, are called negative rebate stocks. In some cases, these negative rebate stocks cost so much just to borrow that a short-seller would need to see a real price drop of 35 percent in the stock just to break even. So how do you short a stock when you can’t find shares to borrow? Well, one solution is, you don’t even bother to borrow them. And then, when the trade is done, you don’t bother to deliver them. You just do the trade anyway without physically locating the stock.
Thus in this document we have another former Merrill Pro president, Thomas Tranfaglia, saying in a 2005 email: “We are NOT borrowing negatives… I have made that clear from the beginning. Why would we want to borrow them? We want to fail them.”
Trafaglia, in other words, didn’t want to bother paying the high cost of borrowing “negative rebate” stocks. Instead, he preferred to just sell stock he didn’t actually possess. That is what is meant by, “We want to fail them.” Trafaglia was talking about creating “fails” or “failed trades,” which is what happens when you don’t actually locate and borrow the stock within the time the law allows for trades to be settled.
If this sounds complicated, just focus on this: naked short selling, in essence, is selling stock you do not have. If you don’t have to actually locate and borrow stock before you short it, you’re creating an artificial supply of stock shares.
In this case, that resulted in absurdities like the following disclosure in this document, in which a Goldman executive admits in a 2006 email that just a little bit too much trading in Overstock was going on: “Two months ago 107% of the floating was short!”
In other words, 107% of all Overstock shares available for trade were short – a physical impossibility, unless someone was somehow creating artificial supply in the stock.
Goldman clearly knew there was a discrepancy between what it was telling regulators, and what it was actually doing. “We have to be careful not to link locates to fails [because] we have told the regulators we can’t,” one executive is quoted as saying, in the document.
One of the companies Goldman used to facilitate these trades was called SBA Trading, whose chief, Scott Arenstein, was fined $3.6 million in 2007 by the former American Stock Exchange for naked short selling.
The process of how banks circumvented federal clearing regulations is highly technical and incredibly difficult to follow. These companies were using obscure loopholes in regulations that allowed them to short companies by trading in shadows, or echoes, of real shares in their stock. They manipulated rules to avoid having to disclose these “failed” trades to regulators.
The import of this is that it made it cheaper and easier to bet down the value of a stock, while simultaneously devaluing the same stock by adding fake supply. This makes it easier to make money by destroying value, and is another example of how the over-financialization of the economy makes real, job-creating growth more difficult.
In any case, this document all by itself shows numerous executives from companies like Goldman Sachs Execution and Clearing (GSEC) and Merrill Pro talking about a conscious strategy of “failing” trades – in other words, not bothering to locate, borrow, and deliver stock within the time alotted for legal settlement. For instance, in one email, GSEC tells a client, Wolverine Trading, “We will let you fail.”
More damning is an email from a Goldman, Sachs hedge fund client, who remarked that when wanting to “short an impossible name and fully expecting not to receive it” he would then be “shocked to learn that [Goldman’s representative] could get it for us.”
Meaning: when an experienced hedge funder wanted to trade a very hard-to-find stock, he was continually surprised to find that Goldman, magically, could locate the stock. Obviously, it is not hard to locate a stock if you’re just saying you located it, without really doing it.
As a hilarious side-note: when I contacted Goldman about this story, they couldn't resist using their usual P.R. playbook. In this case, Goldman hastened to point out that Overstock lost this lawsuit (it was dismissed because of a jurisdictional issue), and then had this to say about Overstock:
Overstock pursued the lawsuit as part of its longstanding self-described "Jihad" designed to distract attention from its own failure to meet its projected growth and profitability goals and the resulting sharp drop in its stock price during the 2005-2006 period.
Good old Goldman - they can't answer any criticism without describing their critics as losers, conspiracy theorists, or, most frequently, both. Incidentally, Overstock rebounded from the 2005-2006 short attack to become a profitable company again, during the same period when Goldman was needing hundreds of billions of dollars in emergency Fed lending and federal bailouts to stave off extinction.
Anyway, this galactic screwup by usually-slick banker lawyers gives us a rare peek into the internal mindset of these companies, and their attitude toward regulations, the markets, even their own clients. The fact that they wanted to keep all of this information sealed is not surprising, since it’s incredibly embarrassing stuff, if you understand the context.
More to come: until then, here’s the motion, and pay particular attention to pages 14-19.
UPDATE: Well, I guess I shouldn't feel too badly for the lawyer who stepped on this land mine. For Morgan Lewis counsel Joe Floren, karma, it seems, really is a bitch.
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Monday, March 12, 2012
GOP Loses Big Voter Suppression Case In Federal Court | AlterNet
GOP Loses Big Voter Suppression Case In Federal Court | AlterNet:
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GOP Loses Big Voter Suppression Case In Federal Court
A federal court has rejected an appeal from the Republican National Committee to modify a 30-year-old legal agreement that prevented it from engaging in one of the most offensive forms of voter suppression: targeting minority voters whose credentials were to be challenged once they enter polling places.
The unanimous opinion of the three-judge-court of the United States Court of Appeals for the Third Circuit was a stunning rebuke of an ongoing effort by the RNC to use any means necessary to game the outcome of elections.
"The RNC asks that our court vacate a decree that has as its central purpose preventing the intimidation and suppression of minority voters," the Court's discussion of the case began. "When, as here, a party voluntarily enters into a consent decree not once, but twice, and then waits over a quarter of a century before filing a motion to vacate to modify the decree, such action gives us pause... At present, appellant [the RNC] seeks review of the District Court's order denying vacatur because it prefers not to comply with the Consent Decree at a critical political juncture -- the upcoming election cycle."
In other words, the RNC was hoping to remove the legal bind it agreed to three decades ago so that it could obstruct the voting process in 2012's swing states. The RNC knows that new voters might be discouraged from voting because they would not want to assert their voting rights if faced with polling place challenger. Moreover, the RNC also knows that any delays in voting, such as long lines, would likely prompt other would-be voters to go home.
According to University of California-Irvine election law professor Rick Hasen, it is likely the RNC will appeal this ruling to the U.S. Supreme Court.
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Sunday, February 5, 2012
Newt: Fire the Janitors, Hire Kids to Clean Schools
Newt: Fire the Janitors, Hire Kids to Clean Schools: "By Maggie Haberman, Politico 19 November 11"
Newt: Fire the Janitors, Hire Kids to Clean Schools
19 November 11
ia POLITICO's Reid Epstein, Newt Gingrich tonight said at an address at Harvard that child work laws "entrap" poor children into poverty - and suggested that a better way to handle failing schools is to fire the janitors, hire the local students and let them get paid for upkeep.
The comment came in response to an undergrad's question about income equality during his talk at Harvard's Kennedy School.
"This is something that no liberal wants to deal with," Gingrich said. "Core policies of protecting unionization and bureaucratization against children in the poorest neighborhoods, crippling them by putting them in schools that fail has done more to create income inequality in the United States than any other single policy. It is tragic what we do in the poorest neighborhoods, entrapping children in, first of all, child laws, which are truly stupid.
"You say to somebody, you shouldn't go to work before you're what, 14, 16 years of age, fine. You're totally poor. You're in a school that is failing with a teacher that is failing. I've tried for years to have a very simple model," he said. "Most of these schools ought to get rid of the unionized janitors, have one master janitor and pay local students to take care of the school. The kids would actually do work, they would have cash, they would have pride in the schools, they'd begin the process of rising."
He added, "You go out and talk to people, as I do, you go out and talk to people who are really successful in one generation. They all started their first job between nine and 14 years of age. They all were either selling newspapers, going door to door, they were doing something, they were washing cars."
"They all learned how to make money at a very early age," he said. "What do we say to poor kids in poor neighborhoods? Don't do it. Remember all that stuff about don't get a hamburger flipping job? The worst possible advice you could give to poor children. Get any job that teaches you to show up on Monday. Get any job that teaches you to stay all day even if you are in a fight with your girlfriend. The whole process of making work worthwhile is central."
The former House Speaker acknowledged that it was an unconventional pitch, saying, "You're going to see from me extraordinarily radical proposals to fundamentally change the culture of poverty in America and give people a chance to rise very rapidly."
'via Blog this'Constitutional Amendment Not Needed: Congress Already Has a Remedy | Truthout
Constitutional Amendment Not Needed: Congress Already Has a Remedy | Truthout: Tuesday 17 January 2012
by: James Marc Leas, Truthout | News Analysis
by: James Marc Leas, Truthout | News Analysis
Constitutional Amendment Not Needed: Congress Already Has a Remedy
by: James Marc Leas, Truthout | News Analysis
Although the Constitution already includes a remedy, certain elected officials and public interest organizations are advocating for a constitutional amendment to overturn recent Supreme Court decisions that have corrupted elections, public officials and government. They are using Vermont town meetings as a springboard for the campaign. Critics of the constitutional amendment approach point out that an amendment would not solve the problem, legitimizes the Supreme Court seizure of power over elections, would keep the Supreme Court in charge and diverts from a solution already in the Constitution that more effectively solves the problem with far less effort. The simpler alternative that is already available in the Constitution deserves attention.
Supreme Court decisions legalizing private interest financing of election campaigns have enabled a vast increase in private interest control over our federal government. The 1 percent contribute hundreds of millions of dollars in election campaigns to empower themselves and disempower the 99 percent. To keep that money flowing to themselves, elected officials waste enormous sums of taxpayer's money on government contracts, subsidies, bailouts, wars and tax cuts for the rich. The 1 percent thus receive enormous returns on their political investments. By contrast, the government uses the resulting deficits to justify cuts in needed spending on education, health care, environment, safety and infrastructure that would benefit the 99 percent who do not buy elections and influence.
Here is why a constitutional amendment is not needed to end this disenfranchisement of the 99 percent. The revolutionary leaders who wrote the Constitution, fresh from overthrowing the tyranny of King George, included sufficient checks and balances on all three branches of government - including the courts - to prevent the kind of tyranny we now suffer.
Under our existing Constitution, Congress already has the power to stop the court from making any more of the decisions that have allowed the 1 percent to buy elections. Then Congress can pass legislation reversing the unconstitutional decisions the court has made to corrupt elections.
Here is the provision the founding fathers included:
The Supreme Court shall have appellate Jurisdiction, both as to Law and Fact with such Exceptions and under such Regulations as the Congress shall make (US Constitution, Article III, Section 2).
Hence, under the Constitution, Congress has the power to remove Court jurisdiction over financing election campaigns. Removing Court jurisdiction means that the court would not even be able to take up cases involving financing of elections. Congress and state legislatures will then be free to pass laws removing private money from election campaigns. Thus, Congress already has power to curtail the court and the tyranny of private money in elections facilitated by the 5-4 majority of Supreme Court judges whose goal is to empower the 1 percent at the expense of the rest of us.
Separately, Congress also establishes and controls all "inferior courts" (Article III, Section 1).
It is not just the Constitution. As early as 1803, in a case called Marbury v. Madison, the case in which the Supreme Court established judicial review, the court also recognized that it must not decide questions that are "in their nature political." Regulating elections and their funding to prevent corruption is a quintessential political question. For 173 years, the courts followed this mandate and declined jurisdiction over such political questions.
Under Article I of the Constitution, it is Congress - not the court - that has the exclusive power to make or alter regulations regarding the "Manner" of holding elections. Under this Article I power, "in 1907 Congress passed the Tillman Act, prohibiting national banks and corporations from making contributions in federal elections. The Corrupt Practices Act, first enacted in 1910 and replaced by another law in 1925, extended federal regulation of campaign contributions and expenditures in federal elections and other acts have similarly provided other regulations." (Congressional Research Service Annotated Constitution.)
Under Article I, Congress also has the exclusive power to judge the elections of its members.
All this changed in 1976 when the court injected itself into election financing and overturned long-established law, deciding that corrupting money in politics is constitutionally protected speech. The court, not Congress, established as law that putting money in the pocket of a politician has the same protected status as speech by a citizen. Thus, the court allowed the 1 percent with money to drown out the speech of ordinary voters. In that decision and in 5-4 decisions since then, the Supreme Court also violated its own long-established precedent of keeping out of political questions so it could unleash special interest money in politics. By doing so, the court overstepped its judicial powers and intruded on Congress' legislative powers to regulate and judge elections. the court thus violated the separation of powers which is the most fundamental bulwark the Constitution provides raised against tyranny. The disenfranchisement of the 99 percent and auction of public policy to the 1 percent is the consequence of Congress' failure to maintain the separation of powers with respect to election integrity.
The decisions since 1976, including the 2010 Citizens United decision, addressed an increasing problem for the 1 percent. Faced with an aroused public, Congress had earlier passed vast amounts of progressive legislation, including the Clean Air Act, product safety and food safety laws, the EPA, the Clean Water act, the Occupational Safety and Health Act, consumer protection laws and laws regulating campaign contributions and spending. One of the ways the 1 percent fought back to empower themselves and disempower the 99 percent was for pro-corporate presidents to nominate pro-corporate justices, who would make elections a commodity that corporations and wealthy individuals could finance and control.
By enabling the upper 1 percent to buy elections, the court put an end to rule of, by and for the people at the federal level and within most states. The court not only put a stop to progressive legislation, but they turned the government into an instrument to increase the wealth and power of the 1 percent. To its credit, Vermont has successfully resisted the power of money in several recent elections. But recent Supreme Court decisions allow an overwhelming flood of private interest money, even putting democracy in Vermont at risk.
Now is the time for we, the people; our towns; and our states to demand that Congress use its existing power to re-establish the bar on court jurisdiction over financing election campaigns, establishing public funding and removing private interest money from elections.
Tragically, the recently initiated drive for a constitutional amendment dangerously leads the public away from demanding that Congress act now using its existing power. It implements delay. It substitutes an incredibly difficult approach. It legitimizes the court's illegitimate seizure of jurisdiction over a fundamental political question. It also demeans the American revolutionaries, who purposely and intentionally wrote this important check and balance into our Constitution for just such a circumstance as the one we face now. And asserting that the only solution is a constitutional amendment diverts, weakens, confuses and demobilizes people.
Even if a heroic public managed to mobilize in great enough numbers to force passage of a constitutional amendment, the amendment would not actually solve the problem if jurisdiction over election financing is left in the hands of this court. The majority on the Supreme Court, having already violated their constitutional mandate, would find other ways to use that continuing jurisdiction to make bogus decisions that maintain and expand the power of the 1 percent.
What is needed is for Congress to remove jurisdiction over financing election campaigns from the jurisdiction of the court. So the court is entirely out of the picture on this subject as the Constitution and Supreme Court precedent required. The revolutionaries who wrote the Constitution provided Congress with the constitutional power to do just that. Misleading the public away from that heritage and that power will only legitimize and entrench the status quo.
If the text of the Constitution, as written by the revolutionary leaders and the position of the court for 173 years regarding political questions, as well as the specific Article I powers assigned exclusively to Congress, are insufficient to persuade the reader of this article, consider the practicalities:
- A constitutional amendment requires a two-thirds vote in each House plus ratification by three-quarters of the states within seven years, an incredibly high bar.
- A law requires only an ordinary majority in each House to deny court jurisdiction over funding elections and to pass legislation removing private interest money from election campaigns.
Certainly, achieving an ordinary majority will be a difficult task. A mass movement, such as initiated by Occupy Wall Street but far larger, is needed to demand power for the 99 percent, equality and an end to rule by the 1 percent. As difficult as demanding and achieving ordinary legislation is with a Congress already corrupted by money in elections, achieving a constitutional amendment will be inestimably harder.
The possibility of building the required movement is enhanced if the public understands that Congress already has the power to accomplish the goal with an ordinary majority vote. And that no almost insurmountable hurdle, like two-thirds of each House and three-quarters of the states within seven years, blocks the way.
Occupy Wall Street initiated the necessary mass campaign and it can continue to press for immediate action to overturn the gross inequality in political and economic power. By continuing to use the right to assemble, speak, petition and occupy, introduce resolutions at town meetings and unions, picket, march, rally, strike, sit-in and hold elected officials accountable handed down by our revolutionary forebears who inspired the Constitution, they can continue to build that mass campaign to force Congress to take action now. They can demand that Congress use the brilliant check and balance on court jurisdiction those revolutionaries included in Article III Section 2 of the Constitution. Occupy Wall Street need not be diverted, nor its goal delayed, with a useless quest for a constitutional amendment.
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