Wall Street's Naked Swindle

[Warpy]

(apologies if this has been posted before, didn't see it)

http://www.rollingstone.com/politics/story/30481512/wall_streets_naked_swindle

A scheme to flood the market with counterfeit stocks helped kill Bear Stearns and Lehman Brothers — and the feds have yet to bust the culprits

MATT TAIBBIPosted Oct 14, 2009 9:30 AM

Watch Matt Taibbi break down short-selling vs. naked short-selling on his blog, Taibblog.

On Tuesday, March 11th, 2008, somebody — nobody knows who — made one of the craziest bets Wall Street has ever seen. The mystery figure spent $1.7 million on a series of options, gambling that shares in the venerable investment bank Bear Stearns would lose more than half their value in nine days or less. It was madness — "like buying 1.7 million lottery tickets," according to one financial analyst.

But what's even crazier is that the bet paid.

At the close of business that afternoon, Bear Stearns was trading at $62.97. At that point, whoever made the gamble owned the right to sell huge bundles of Bear stock, at $30 and $25, on or before March 20th. In order for the bet to pay, Bear would have to fall harder and faster than any Wall Street brokerage in history.
-----------
The SEC's halfhearted oversight didn't go unnoticed by the market. Six months after Bear was eaten by predators, virtually the same scenario repeated itself in the case of Lehman Brothers — another top-five investment bank that in September 2008 was vaporized in an obvious case of market manipulation. From there, the financial crisis was on, and the global economy went into full-blown crater mode.
-------------

Much much more at the link, another great Rolling Stone expose, nice link to Taibbi's blog detailing the naked short selling schemes that have enriched institutional traders at our expense for so many years.

[paulsby]

1. i LOVE short selling but i HATE naked short selling

we need to stamp out the latter.