In yesterday’s article we alluded to why we are in the mess we are in and why the real concern is how certain investors are a serious danger to the entire economic well-being of us all. We generally understand that the economic collapse had to do with the mortgage industry and something called derivatives but generally we really don’t understand anything. Hey, we aren’t in the finance business, we are just users of financial services. I thought it important to really explain things so that we CAN really appreciate how things are being manipulated, and why and where those billions that were lost went. It is only when the general public can fully appreciate what is going on will we, in an informed way, see to the changes we must put into place. First some definitions:
The uptick rule generally prohibits short selling of securities except on an uptick. The rule was defined by U.S. Securities and Exchange Commission (SEC) which summarized it: “Rule 10a-1(a)(1) provided that, subject to certain exceptions, a listed 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 than the last different price (zero-plus tick). Short sales were not permitted on minus ticks or zero-minus ticks, subject to narrow exceptions.”
The uptick rule was put into place after the 1929 stock market crash, but was eliminated during the banking deregulation that was so heavily lobbied by Goldman Sachs and others. The reason was so they could participate in short selling which is defined as:
In finance, short selling (also known as shorting or going short) is the practice of selling assets, usually securities, that have been borrowed from a third party (usually a broker) with the intention of buying identical assets back at a later date to return to the lender. The short seller hopes to profit from a decline in the price of the assets between the sale and the repurchase, as he will pay less to buy the assets than he received on selling them. Conversely, the short seller will incur a loss if the price of the assets rises. Other costs of shorting may include a fee for borrowing the assets and payment of any dividends paid on the borrowed assets. Shorting and going short also refer to entering into any derivative or other contract under which the investor profits from a fall in the value of an asset. In other words the short seller is betting on a devaluation of the assets.
All of this is put into a contract which is a derivative of the original loan or stock sale agreement documents. A derivative is defined as:
In finance, derivatives is the collective name used for a broad class of financial instruments that derive their value from other financial instruments (known as the underlying), events or conditions.
Derivatives are usually broadly categorised by the:
- relationship between the underlying and the derivative (e.g. forward, option, swap)
- type of underlying (e.g. equity derivatives, foreign exchange derivatives, interest rate derivatives or credit derivatives)
- market in which they trade (e.g., exchange traded or over-the-counter)
- pay-off profile (Some derivatives have non-linear payoff diagrams due to embedded optionality)
Another arbitrary distinction is between:
- vanilla derivatives (simple and more common) and
- exotic derivatives (more complicated and specialized)
There is no definitive rule for distinguishing one from the other, so the distinction is mostly a matter of custom.
Derivatives are used by investors to
- provide leverage or gearing, such that a small movement in the underlying value can cause a large difference in the value of the derivative
- speculate and to make a profit if the value of the underlying asset moves the way they expect (e.g. moves in a given direction, stays in or out of a specified range, reaches a certain level)
- hedge or mitigate risk (here is the Hedge funds) in the underlying, by entering into a derivative contract whose value moves in the opposite direction to their underlying position and cancels part or all of it out
- obtain exposure to underlying where it is not possible to trade in the underlying (e.g. weather derivatives)
- create optionality where the value of the derivative is linked to a specific condition or event (e.g. the underlying reaching a specific price level
We know what this did to the mortgage markets, now think about this in the context of the situation in Greece in relationship to the value of the Euro.
When the European Union (EU) bails out Greece, that bail-out will increase the EU deficit and weaken their currency, hence the decline in EU currency. This is theory being promoted by the manipulators. George Soros, the hedge fund short sellers and the speculators will trade with that assumption. They will run down the EU currency and that will be a manipulation by collusion. Soros is a member of the Managed Funds Association, so is Goldman Sachs and they are “making negative comments about the Euro. They are targeting and preying on capitalist countries and currencies.
By using these investment tools they have a license to destroy any company or country or hold the company or country hostage while preying on the investors. They are having dinner meetings, openly discussing collusion to attack a particular asset class, equity, or a country’s currency. That is why I said if you or I did this we would be investigated by the FBI under the Rico Act as an organized crime syndicate. No joke!
Christopher Cox, who served as chairman of the Securities and Exchange Commission (SEC), and was responsible for laying the groundwork for this financial upheaval said, “The removal of the uptick rule, and the circuit breakers and the introduction of mark to market accounting is what caused the economic collapse and the stock market crash.” He says. “Greece lost investment capital in the 2008 Wall Street collapse, which gave their country a balance sheet problem on top of the debt they already have. Their deficit ballooned. You know the rest. The EU is accusing Greece of not disclosing all their debt and investment risk exposure.”
Soros and other short sellers who belong to the Managed Funds Association, the “voice of the global alternative investment community,” are corrupting influences that undermine nations, their economies and currencies, and the global financial system as a whole. As long as we allow a private corporation (The Fed) to have regulatory authority over these guys and the largest banks as well, we are only cannon fodder and your money…well it’s not your money. It is theirs for the taking. Ask anybody who lost their homes or 30-50% of the value of their retirement funds.