Hedge Funds and the Global Economic Meltdown (Part 3)

Short selling hedge funds lit the spark that led to the global economic meltdown. Now they want to help craft the laws Congress will pass to fix our broken regulatory system. That's insane.

Category:

News & Politics

Tags:

• wall street
• hedge funds
• naked short selling
• lehman brothers
• bear stearns

[InvestingToday]

Since companies can pledge their own shares as security for loans, why not take the step of banning companies from pledging securities of their own company preventing banks from calling the loans. Wouldn't that solve the problem?

[writerjudd]

@InvestingToday I suspect that would have benefited the banks (Bear and Lehman) damaged by this attack. But it wouldn't have helped the many non-finance sector companies targeted by manipulative naked shorting over the years, where the process often persisted for very long periods of time. If any good came of the collapse it was jarring the SEC into action, forcing them to finally enforce prohibitions on a practice that was already illegal.

[toddzilla40]

These have been great, but I still don't get it. Bear and Lehman had rich, powerful people behind them as well. And they failed. I also don't understand how the failure of two companies, no matter how big, can cause a global financial crisis. And finally, as someone else has posted, I don't understand why these transactions aren't traceable and prosecuteable. Thanks for your explanation of the Michael Moore thing; that bothered me too.

[writerjudd]

@toddzilla40 Banks lend each other large amounts of money. If bank A owes bank B but A suddenly goes bankrupt, some of B's cash goes with it. When banks operate on ~10% capital reserves, it doesn't take much to go insolvent, forcing surviving banks to hold on to their cash and make many fewer loans. Without credit, economic growth halts, which leads to recession (or worse).

[5767ziegler]

Wow! until you mentioned Michael Moore. Then ....what is the opposite of 'Wow!'

[corruptiblelogistics]

As you say "banks operate on -10% capital reserves", that too is naked short selling. I cannot loan someone money I do not have, the only way that the banks can is because government 'guarantees them'. When the reality is that government, like the banks, have virtually no capital, when they 'guarantee' the banks, they are forced to print the money used to back up the total short position.

Leading to inflation, aka, stealing money from everyone who owns fiat currency.

It's all fraud.

[kbgambrah]

@corruptiblelogistics I don't subscribe to the conspiracy theory of the fractional reserve system but it sure is a sub-optimal arrangement. Cobbled together from several pragmatic steps and using a lot of strings and spaghetti wires to control this behemoth. It seems some people do occasionally game the system successfully but overall, it has served progress of humanity well. To be sure, take a look at any developing country with few loans in their economy.

[smartification1]

8-8-11 in bonds. 9-9-8 in stocks.

[Ainznando]

Well produced video! But it's simplistic to blame the demise of these companies purely on speculators... Bear & Lehman were both stuck with vast quantities of worthless mortgage paper and were leveraged up to their eyeballs... that was the root problem. Shorters knew this & exploited it for huge gain. If more investors had seen thru their accounting skullduggery & shorted them sooner, maybe they wouldn't have gotten themselves into such dire straits in the 1st place.

[hubeef]

The world is a joke!

[oilpatchgirl]

Interesting, since the troubles began in the middle east we have suddenly been getting Al Jazeera on our satellite network. Today they announce the despicable Hedge funds in London are speculating on commodities such as food like RICE, WHEAT, CORN. They could well starve nations if I follow your information correctly. This must be stopped on a worldwide basis. By the way loved your video, been trying to follow this mess.

[darthspeaks]

... and they shall grind the face of the poor.

[JackOffVille]

The new "regulations" make the too big to fails more powerful and more capable of eating up small banks, what a win!

[markj90503]

writerjudd: Wonderful video! Thank you! However, I must agree (sort of) with @Investing Today.

Short selling -- even naked shorts -- CANNOT bring down a company, UNLESS the company's working capital is dependent upon the price of its stock holdings.

Typically, that can only happen a company borrows money by using the prices of its own shares as collateral.