classical economics
for analysis,  forecasting
and policy design

News from the Front
News from the Front

No SEC Enforcement of Short Selling Ban
    Remember the SEC ban against all short selling of specifically named financial stocks, issued at the behest of Morgan Stanley and Goldman Sachs as their shares were being raided by naked short selling during mid-September last year? Yes, the ban for which the SEC was so roundly criticized because it interfered with market processes. The ban that did more harm than good by preventing conservative investors from hedging their long positions, and the ban that didn’t work because share prices of financial firms fell sharply anyway.
    Turns out the SEC did nothing to enforce the ban against short selling of financial stocks. The NYSE/ARCA exchange was so ill-advised as to allow its computers to disclose short sales in financial shares during the period they were banned by the SEC. Short sales of financial shares on the list of companies protected by the SEC ban actually increased to a level three times higher than occurred when no ban was in effect for the same period one year earlier. This startling discovery adds to the growing mound of evidence that this agency is captured by moneyed interests which subvert its purpose of protecting all investors from fraudulent and manipulative practices. ~

SEC Reopens Investigation of Pequot Capital

    Pressed by demands from Senators Arlen Specter and Charles Grassley, the SEC reopened its twice-closed investigation of Pequot Capital, the giant hedge fund that finally came under review in 2004 and 2005 after nearly two dozen reports of apparent insider trading from financial industry self-regulatory-organizations. In September, 2005, the SEC fired its lead attorney on the case, Gary Aguirre, after Aguirre disclosed the evidence he gathered pointed to John Mack as the suspected tipper of Pequot. Shortly after Aguirre’s termination, Mack was hired as CEO of Morgan Stanley, the position he still holds.
    The SEC issued subpoenas for evidence in a Connecticut divorce case after press reports that a former employee of Microsoft and Pequot claimed entitlement to $2.1 million in payments from Pequot. Aguirre’s investigation found evidence this same person, while employed by Microsoft, tipped Pequot’s CEO of inside information on Microsoft earnings. The $2.1 million is payable by Pequot in three installments, one of which has been paid, and is alleged by the employee to be for wrongful termination. Whether the investigation proceeds or dies when the new SEC chairman Mary Schapiro takes office remains to be seen, but for now the case is open. The much larger issue regarding Pequot Capital involves large scale stock manipulation revealed in evidence disclosed by the Senate investigation of the SEC led by Specter and Grassley, who no longer chair the committees with authority to issue subpoenas. ~

CBS’ “60 Minutes” on Crude Oil “Speculation”

    The CBS television news magazine aired a reasonably informative report on January 11, only six months after public hearings in the Senate and House revealed damning evidence of manipulation in U. S. markets of the global price of crude oil. The few witnesses interviewed by “60 Minutes” were some who testified to the Senate last May, and to the House in June, revealing a complete breakdown of the historic relations among supply, demand and price for crude oil.  Michael Masters stated (again) that demand for crude declined throughout 2008 while supply stayed steady, yet the price doubled, and he related the role of index funds in pushing prices of futures contracts higher.
    Here is what The Supply Side Guide said about the need for federal investigation of crude oil prices in its fourth issue on April 27, 2006:

    Geopolitical risk adds a premium to the oil price, but most analysts view oil prices as higher than can be explained by risks of supply disruption. Inflation is already factored into the oil/gold ratio, so something additional is keeping oil high.
    Congress and the president want a federal investigation of big oil companies, but that has been done already with no wrong-doing found. If an inquiry is to be made, federal investigators ought to cast their lures into the un-fished waters of myriad hedge funds that buy oil futures contracts. On the huge scale of hedge fund assets and leverage, soaking up marginal oil production so prices don’t fall (or actually rise) is really not out of reach.

In many issues since, The Supply Side Guide inveighed against apparent manipulation of oil prices. Yet major media avoid any mention of oil price manipulation by Wall Street. Even “60 Minutes” never mentions manipulation, only “speculation,” and speaks as though unruly investors just bought too many futures contracts. CBS never mentions the obvious timing of the oil price spike and global economic collapse relative to the November, 2008, federal elections in the U. S.
    Manipulation of crude oil prices is a criminal enterprise with devastating effects on societies worldwide, not the least being America itself. That such a criminal enterprise can operate so effectively in the U. S. – robbing people of property and political rights without timely comment by major media – illustrates the dire straits from which civilized society must find deliverance. ~