WHAT HAPPENED?

The Great Stock Market Heist of 2008

Here is how it went down:

 

http://losangeles.injuryboard.com

In 1933, a few years following the stock market crash, Congress passes the Glass-Steagall Act, in hopes that regulating banks will help prevent market instability, particularly amongst Wall Street banks. The purpose of the act is to separate commercial banks that focus on consumers from investment banks, which deal with speculative trading and mergers.
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The UPTICK RULE of Short Sales:

www.law.uc.edu

General Rules and Regulations

promulgated under the

Securities Exchange Act of 1934

Rule 10a-1 -- Short Sales [Removed and Reserved, Effective July 3, 2007]

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In 1999, former Senator Phil Gramm (who is [was], incidentally, Senator John McCain's economic adviser and cochairs his presidential campaign) set out to completely gut the Glass-Steagall Act, and did so successfully, replacing most of its components with the new Gramm-Leach-Bliley Act: allowing commercial banks, investment banks, and insurers to merge (which would have violated antitrust laws under Glass-Steagall).

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In 2000, shortly after George W. Bush was elected president, Congress and President Clinton were trying to pass a $384 billion omnibus spending bill, and while the debates swirled around the passage of this bill, Senator Phil Gramm clandestinely slipped a 262-page amendment into the omnibus appropriations bill titled: Commodity Futures Modernization Act. It is likely that few senators read this bill, if any. The essence of the act was the deregulation of derivatives trading (financial instruments whose value changes in response to the changes in underlying variables; the main use of derivatives is to reduce risk for one party). The legislation contained a provision -- lobbied for by Enron, a major campaign contributor to Gramm -- that exempted energy trading from regulatory oversight. Basically, it gave way to the Enron debacle and ushered in the new era of unregulated securities.

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www.commondreams.org

The legislation's "Legal Certainty for Bank Products Act of 2000," Title IV of the law - a law that Gramm snuck in without hearings hours before the Christmas recess - provided Wall Street with an unbridled license to steal. It made certain that financiers could legally get away with a whole new array of financial rip-off schemes.

One of those provisions, summarized by the heading of Title III, ensured the "Legal Certainty for Swap Agreements", which successfully divorced the granters of subprime mortgage loans from any obligation to ever collect on them. That provision of Gramm's law is at the very heart of the problem. But the law went even further, prohibiting regulation of any of the new financial instruments permitted after the financial industry mergers:


"No provision of the Commodity Exchange Act shall apply to, and the Commodity Futures Trading Commission shall not exercise regulatory authority with respect to, an identified banking product which had not been commonly offered, entered into, or provided in the United States by any bank on or before December 5, 2000. ..."


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In 2003, Gramm left the Senate to join UBS, which had acquired investment house PaineWebber due to his deregulation bill. At UBS, Gramm lobbied Congress, the Fed and the Treasury Department. During Gramm's tenor at UBS and as a lobbyist, Congress passed the Responsible Lending Act, billed as an anti-predatory-lending measure, but was called the "Loan Shark Protection Act" by consumer advocates, as it was designed to preempt stronger state laws against anti-predatory lending.

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And, of course, The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 pulls the rest of the rug from under the American people.

Since 1934, short selling on the down-tic was outlawed until July 2007.

The "UpTick Rule" kept the stock market from collapsing by a rush to hedge on the fall of stocks.

tradermike.net

The SEC has voted to remove the “short sale tick test”, Rule 17 CFR 240.10a-1 for all equity securities. Effective Friday, July 6, traders will be able to short all securities on an up, down, or zero tick.


The Commission first imposed restrictions on the execution prices of short sales almost seventy years ago, when we adopted the "tick test" of Rule 10a-1 in 1938. The tick test permits short sales only at a price above the last sale price, or alternatively, at the last sale price -- if that is higher than the previous price.

www.sec.gov

3. Amendments to Rule 10a-1 and Regulation SHO

The Commission voted to adopt amendments to Rule 10a-1 (17 CFR 240.10a-1) and Regulation SHO (17 CFR 242.200 et seq.) that will remove Rule 10a-1 as well as any short sale price test of any self-regulatory organization (SRO). In addition, the amendments will prohibit any SRO from having a price test. The amendments will also include a technical amendment to Rule 200(g) of Regulation SHO that will remove the "short exempt" marking requirement of that rule. The amendments will be effective immediately upon publication of the release in the Federal Register.

The Commission adopted Rule 10a-1 in 1938 after several years of considering the effects of short selling in a declining market. Rule 10a-1 provides that, subject to certain exceptions, a security may be sold short (A) at a price above the price at which the immediately preceding sale was effected (plus tick), or (B) at the last sale price if it is higher that the last different price (zero-plus tick). Short sales are not permitted on minus ticks or zero-minus ticks, subject to narrow exceptions. The operation of these provisions is commonly described as the "tick test." The tick test applies only to listed securities, other than Nasdaq-listed securities, traded on an exchange, or otherwise.

Pirates of the Caribbean.

So, remove all the regulations and oversight, then NAKED SHORT SELLING PREVAILS.

Here is an example of what foreign traders were doing last week:

findlaw.com

U.S. Supreme Court

UNITED STATES v. NAFTALIN, 441 U.S. 768 (1979)

441 U.S. 768

UNITED STATES v. NAFTALIN

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR THE EIGHTH CIRCUIT

No. 78-561.

Argued March 26, 1979

Decided May 21, 1979

Respondent engaged in a fraudulent "short selling" scheme, by placing order with brokers to sell certain shares of stock which he believed had peaked in price and which he falsely represented that he owned. Gambling that the price would decline substantially before he was required to deliver the securities, he planned to make offsetting purchases through other brokers at lower prices. But the market price rose sharply before the delivery date so that respondent was unable to make covering purchases and never delivered the securities. Consequently, the brokers were unable to deliver the securities to the investor-purchasers and were forced to borrow stock to make the delivery. In order to return the borrowed stock, the brokers had to purchase replacement shares on the open market at the now higher prices, a process known as "buying in." While the investors were thereby shielded from direct injury, the brokers suffered substantial financial losses. The District Court found respondent guilty of employing "a scheme and artifice to defraud" in the sale of securities in violation of 17 (a) (1) of the Securities Act of 1933, which makes it unlawful "for any person in the offer or sale of any securities . . . directly or indirectly . . . to employ any device, scheme, or artifice to defraud." The Court of Appeals, while finding the evidence sufficient to establish that respondent had committed fraud, vacated the conviction on the ground that the purpose of the Securities Act was to protect investors from fraudulent practices in the sale of securities and that since respondent's fraud injured only brokers and not investors, respondent did not violate 17 (a) (1).

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Reversed.

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Comments

History paved the way for the NSS

Thanks for the history timeline. I think it IS safe to assume that NSS (naked short sellers) have significantly contributed to our current collapse. All of the modifications in legislations and the various bills passed over the years seem to have been done in the interest of a select few. Prime example: Graham passing a bill that benefits UBS, then subsequently leaving the Senate to work for them? To be that calls an immediate probe to be investigated, I’m sure there is no coincidence. I will go further to say I would not be surprised if Graham and UBS had “talks” prior to his bill being passed. Is it also a coincidence that within 2 years after the down tick short selling rule was lifted, we’ve seen a substantial increase in NSS? We need leaders who act in the interest of the public rather than the interest of the elite( usually about 1% of the overall population). If you’re thinking it’s unfair.. you’re right, but such is the ways of the US government. I recently read another blogger’s perspective where he indicated that “The members grilling Messrs. Paulson and Bernanke are clearly unsettled and (in my view justifiably) angry. They can’t figure out why ‘this mess’ has come on them so suddenly.” Source
I think this is all an act, a show for the public so they can appear as if this as caught them by surprise. But IMO they have been contemplating the very bill they want to pass for at least a couple months. If you control perception, you influence the masses.

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Are we to the point yet

Where we know enough about everybody to pick our politicians by computer and pension them off when we're done with them in such a way that we can ban them from ever working in private industry ever again?

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Maximum jobs, not maximum profits.

Another bailout failure

Remember how the SEC banned short-selling on financial institutions in order to save them from those nasty bears? Well, once again, they caused more harm than good.

The Securities and Exchange Commission's ban on short selling of financial stocks has effectively shut down much of the convertible-bond market, a crucial area of financing for struggling companies.

Convertible securities are essentially bonds that can be exchanged for stock in the future. It's a relatively small market with less than $400 billion in securities outstanding, according to market participants, a fraction of the total for investment-grade bonds. But in times of stress, struggling companies turn to convertibles in order to raise capital when a share price has fallen.

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Short selling

Yes, short selling on the UpTick is a hedge and a control on wild speculation. It has worked well for over 80 years. Massive short selling on the DownTick, though, can instantly crash the markets, as we have learned for the second time.

SEC apparantly doesn't know the difference. (Yeah, right!)

Globalization is a LIE!

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Dana

Globalization is a LIE!