The Rumor Monger Witch Hunt Has Begun

Posted by John Carney, Jul 14, 2008, 10:51am

Let's see if we have this right. It seems the SEC is investigating the market manipulating stories in Reuters and the New York Times about Fannie and Freddie. Oh, no. That's totally wrong. Actually, the SEC is investigating the rumors about the collapse of Bear Stearns, which were somehow "misleading" despite the actual collapse of Bear Stearns.

Wall Street's biggest regulators are examining whether securities firms adequately police rumor-mongering used to manipulate stocks after shares of Lehman Brothers Holdings Inc., Fannie Mae and Freddie Mac tumbled last week.

The U.S. Securities and Exchange Commission's inspections unit, the Financial Industry Regulatory Authority, which monitors brokerages, and the New York Stock Exchange's regulatory arm are checking whether firms have controls in place to prevent the intentional spread of misinformation, the SEC said in a statement today. They will also look at whether employees have been adequately trained.

SEC to Probe Manipulation Through False Information [Bloomberg]

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Tags: Info War

Comments

Posted by guest, Jul 14, 2008 11:05AM

Rumor has it Bear Stearns still exists and actually Jimmy Cayne is shadow Senior Chairman of the Federal Reserve.

Posted by guest, Jul 14, 2008 11:22AM

johnothy, you suck. bear was undoubtedly brought down by the rumors. it had nothing to do with inadequate capitalization. stop defending these hedgie fucks

Posted by guest, Jul 14, 2008 11:22AM

investment partnerships have full control of the financial system.

the assassination of BSC is the proof.

if you clear prime through say LEHMAN, and you're a heavy hitting hedge fund, you short the bejesus out of the stock and then start a rumor that you're going to pull your billions from LEHMAN because of the fear of "counterpart risk" (my new favorite wall street slang word).


it causes an old fashioned bank run and voila, you just cleaned some clocks. and then you can the SEC to go fuck themselves because you're not registered, oh, and plus you've got some fancy politicians invested in your partnership. in blind trusts of course.

every single politician with any sort of net worth is almost fully invested in hedge funds through blind trusts.

regulation?? fuck that shit.

Posted by american bandersnatch, Jul 14, 2008 11:26AM

Bunch of anrgy guests today, a continuation from the weekend. Hope it's cathartic.

Posted by guest, Jul 14, 2008 11:29AM

angry guests? hardly.

it's pure fucking comedy.


i'm stick mainly with debt because even when these dirtbags rumor a company like BSC or LEH out of business, they still have to pay me.

even if i wind up new equity, i just sell the shit.

this game is too easy.

Posted by guest, Jul 14, 2008 11:29AM

angry guests? hardly.

it's pure fucking comedy.


i'm sticking mainly with debt because even when these dirtbags rumor a company like BSC or LEH out of business, they still have to pay me.

even if i wind up new equity, i just sell the shit.

this game is too easy.

Posted by guest, Jul 14, 2008 11:31AM

sorry for the double post.

i had too many coronas this weekend and it's making me cathartic. fancy word.

Posted by beentheredonethat, Jul 14, 2008 11:36AM

I would love to see a legally enforceable definition of the word "rumor". The are so many different constructions available in the English language that would achieve the same purpose. Not a chance in hell anyone gets busted, unless and perhaps, the Fed feels the need to suspend the 1st Amendment in the name of market stability. By the way, I hear the Fed is out of cash. Arrest me!

Posted by beentheredonethat, Jul 14, 2008 11:40AM

Def:

"1. A piece of unverified information of uncertain origin usually spread by word of mouth.
2. Unverified information received from another; hearsay.

Okay, going forward, please independently "Verify" everything anyone tells you at any time on any subject.

Posted by guest, Jul 14, 2008 11:43AM

Transparency, full disclosure, and credibility of management is all it takes to dispel rumors - the fact that you can be so easily brought down means you were missing all 3 (and not for unjustified reasons). Better re-evaluate your model of doing business.

Posted by guest, Jul 14, 2008 11:44AM

well i suppose if you have say 5 billion @ xxx prime and you go out and short a few million shares of the stock, buy every put in sight and then then your pm's start telling their pm friends that their gp might be pulling their coin from xxx prime because they're afraid they're not financially stable, that's sort of "illegal". and then all of sudden some paid for (off) asshole is on CNBC shouting that customers of the parent of xxx prime are afraid of "counterparty risk!!" and are pulling their coin from xxx prime.

if it's not illegal, it should be.

but, what, do, i, know?

Posted by Judson_Clark, Jul 14, 2008 11:47AM

I think my stoinker don’t stoink no mo (wink, wink)! Is there a remedy for this? Can I mix the lime with the coconut and drink it all up?

Posted by guest, Jul 14, 2008 11:47AM

hi 11:43. :-)

so you agree that all investment partnerships should be subject to to investment acts?

Posted by beentheredonethat, Jul 14, 2008 11:50AM

@11:44
The Govt. would first have to prove the information was not only false, but materially false. They would next have to prove that you knew it to be false. Then they would have to prove conspiracy and collusion among the different parties subjected to the rumor. The last part is difficult, the first part almost impossible, unless there is now some sort of verification mechanism that's been slipped into our concept of free speech. The truth and transparency, as you stated, should be more than enough to defeat somebody's bullshit. If not, a short position would never ever lose money.

Posted by guest, Jul 14, 2008 11:51AM

fucking morons. companies that implode these days seem to have leverage, exposure to real estate, and poorly underwritten loans in common. seems to me as if the SEC ought to be investigating why the regulators sat around with their thumbs up their asses when migrant tomato pickers from mexico could get no-doc mortgages.

Posted by guest, Jul 14, 2008 11:56AM

i suppose payback will come in the form of 50% price drops in high end residential real estate.

greenwich, ct., here i come! no thank you.

Posted by guest, Jul 14, 2008 11:58AM

or perhaps a nice little crash pad at the plaza?

Posted by beentheredonethat, Jul 14, 2008 12:01PM

@11:51
Now I know you're a smart guy, but are you really asking the guys in DC to take responsibility for something? Also, let's not forget DC behaves like a clan in West Virginia. The incestuous relationship between the political donations coming out of FRE and FNM employees to the politicians would be enough to make a Hatfield blush. And as a regulator, do you really want to rock that boat? Where would your next job come from?

Posted by guest, Jul 14, 2008 12:02PM

hey what happens when i.p. distributions to all "employees" are subject to all income tax?

paying ssn on all income is going to suck. hard.

obama '08~!111!!

bush sucks! lol how long before we remember the good old days?

Posted by guest, Jul 14, 2008 12:04PM

beentheredonethat - are you outraged that chuckie schumer assassinated indymac?

somebody needed to, i suppose.

Posted by beentheredonethat, Jul 14, 2008 12:11PM

Not sure about the Schumer thing. Stating the obvious is whatever. But I remember during the 1990-91 bank fiasco everybody on the street knew CCI was insolvent, but nobody pressed the issue, and if you can hang on long enough, eventually the assets on the books will rise enough to gain solvency again. This was the specific situation where "too big to fail" came from. Eventually CCI was done writing off their real estate losses, values began to recover, and the bank continued on. But during that process a run on the bank could have started at anytime and they would have been finished. Or the regulators could have enforced strictly the capital requirements and shut them down. Wiser heads prevailed and neither happened.

Posted by diablo, Jul 14, 2008 12:13PM

Judson

You are going to get a belly ache.

Posted by mktmkr, Jul 14, 2008 1:10PM

So first it's oil speculators and now it's rumor mongers. One thing we can all agree on is it's always someone else's fault.

Posted by guest, Jul 14, 2008 2:34PM

Interesting to know that Chris Cox was finally subject to enough pressure that he had to do something. If the level of proof is what beentheredonethat at 11:50 a.m. says it is, it's going to be hard to make those investigations pay off. Plus, if hedge funds are beyond the SEC's jurisdiction, they might as well hang up the tennies now.

LBJ dealt with similar situations by forming fact-finding commissions to make recommendations. For instance, the government's report The Challenge of Crime in a Free Society pulled together a lot of ideas about criminal justice reform and publicized them.

Since enforcement at this point would be difficult if not impossible, why not appoint a bunch of experts to a commission and ask for a report on the various factors that go into market overreactions severe enough to bring down companies. In terms of addressing the immediate problem, asking the questions would have some of the same inhibiting effect as conducting a pointless investigation, and in the long run, the government might end up with ideas that might be both constitutional and useful.

Posted by beentheredonethat, Jul 14, 2008 2:48PM

As far as the current problem, the law needs to be on the books now in order to enforce. I can't imagine the interpretation of which statute will be bent, twisted, and stretched to fit these cirumstances. Until Lehman shows its hand, considering the stock is down 80%, any prudent investor would assume them to be true until proven otherwise. Are they insinuating it would be criminal to share one's train of thought with somebody/anybody else? How foolish of them. Not to mention desperate.

Posted by jerrydill, Jul 14, 2008 3:34PM

It's so good to see our tax dollars at work sometimes...

Posted by onetwo , Jul 14, 2008 4:32PM

@beentheredonethat

It's pretty obvious that if a fund can bring down a bank by saying they will leave their PB then the bank is in no way diversified or well enough capitalized. And this isn't just in banking, if a single customer of any kind can ever bring a company down by simply pulling their business then the company isn't fit to be an ongoing concern.

Furthermore, what if the fund really is leaving the PB and it would materially hurt the bank's earnings going forward. That's the kind of information the market needs!


1-2

Posted by guest, Jul 14, 2008 4:41PM

@1-2-- appreciate-- and agree with-- your argument but would it be possible for you to stop posting it over and over like it's some sort of breaking insight not held by a decent amount of people?

Posted by guest, Jul 14, 2008 4:42PM

11:47am - public companies are not private investment partnerships. Nevertheless, everyone must manage their relationships to maintain them. This is where the transparency, disclosure, and the credibility of management's word comes in.

Posted by guest, Jul 14, 2008 5:13PM

The Office of Federal Housing Enterprise Oversight ``has made clear that Fannie Mae and Freddie Mac are adequately capitalized,''
-Hank Paulson told the House Financial Services Committee on July 10, 2008


The officials said they were prompted to act because, despite repeated assurances by top officials that the companies had adequate cash to weather the current financial storm, Fannie and Freddie suffered a withering blow of confidence last week when their stocks plummeted.
-NY Times, July 14, 2008

Does this mean that the SEC will be going after Paulson and other government officials who made these misleading statements? Weren't these assurances given as bald faced attempts to manipulate the market? How is it legal for government officials to make these statements of facts then turn around 3 days later and say the exact opposite? I know, the Bush Administration lives above law.

Posted by StMarc, Jul 14, 2008 5:24PM

@4:32 - I hope you meant, "Except for defense contractors."

I mean, as much as I'd love to have an AH-64 Apache, I'm just one man. There can't be that many really rich bastards who want one. And those guys at Hughes (now part of Amalgamated "We ARE the Military-Industrial Complex" Boeing) have families to feed.

M

Posted by onetwo , Jul 14, 2008 5:38PM

@4:41 - agreed. i just wish people would stop making the same stupid arguments for this witch hunt over and over again.

@StMarc - definitely thought about that one, and I absolutely agree the defense contractors are in the toughest spot in this regard. That said, even though defense contractors rely solely on one monopsonistic buyer (the US gov't) the risk remains none the less. If you need the government alone to purchase your wears then you are not a diversified or stable company. You at substantial risk of your single buyer fleeing and your business going under. While there is no way to sell Apaches to a diversified client base, your product mix should be such that you can survive without that sole sale. It aint easy to be a military supplier, but that's the idiosyncratic risk of owning one.

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