There was a thread yesterday about Jim Cramer and Gamestop (GME) stock.
Although I disagreed with just about everyone in that thread, it did cause me to do a little digging.
I found this lecture by Patrick Byrne. He explains how Goldman Sachs creates FAKE shares of stock that do not exist, and this is how their company is so profitable.
The problem is, it has caused massive leverage in the system, and could be one of the reasons for a stock market crash (the money printing by the Federal Reserve is the other reason).
Goldman Sachs and the other prime brokers are THE SOURCE of ALL fake shares in the marketplace (and basically, all the fuckery in the marketplace).
The part where he explains HOW they create the fake shares is about 10 minutes of the presentation, and starts at about 3:00 (then, he goes on to talk about how to solve the problem with blockchain):
https://www.youtube.com/watch?v=COQvMsbb-Cw
- Almost 100% of the profits of Goldman Sachs comes from their "Securities Lending" operation
- That operation is focused mostly on "hard to borrow shares"
- They identify stocks that people want to short, then they lend those shares out
- They do NOT have to actually own the stock when they lend it out
- This allows GS to lend out shares that do not exist
- Since they are also a prime broker, most of this lending is necessarily to hedge funds, which are the investors who are shorting stock that does not exist
Goldman Sachs and the other 5 prime brokers are the SOURCE of all the fake shares out there.
This is EXACTLY the same as the "money changers" from centuries ago, when they created more money certificates than were actually backed by gold on deposit. Same exact scam, just with stock instead of gold.
It is always good to know the names of the criminals to prosecute. Now, it's just a matter of finding the prosecutors and getting them into office.
I would be careful about any financial advice from Patrick Byrne.
He had a long ongoing war since like 2004 against short sellers who were betting against his company. He said they were doing something nefarious and illegal called naked short selling which sounds like what your post refers too, but many other folks were saying he was going after regular short selling which is legal. If his company did very well, he would have crushed the shorts, but his company never really took off, it was promoted like another Amazon and it seems like he was blaming the short sellers for poor corporate performance. I think the SEC outlawed naked short selling in 2008 or strengthed their rules against it.
But, here's the thing I don't think he ever proved it. It's really hard as an outsider to tell if a claim of naked short selling is legit. A company executive make may this claim to explain why his stock is going down to cover the fact, the company has problems.
Byrne filed some lawsuits and then settled them years and years later without terms being disclosed. It went on for over a decade, I remember trying to follow this story as it happened and it was never clear if what he claimed was actually happening.
When he left his company and sold his stock he was accused of market manipulation
https://www.marketwatch.com/story/overstock-founder-tried-to-squeeze-short-sellers-then-sold-out-when-the-sec-cracked-down-2019-09-19
And legal short-selling can be a very good thing. If folks start to short a company that is a signal to other investors there may be problems at the company.....a big debt payment coming up, or their new product is going to be delayed or they can't pass regulatory issues, etc.
For example, bitcoin is down by like 33% over the last few months. If a few months ago, you had some information the price may go down, you might not have bought more or sold what you had.....Short selling is information like that.....but as with any investing, there's tons of information to process.
Accused of market manipulation? Haha. Of course he was. People here are quick to quote the very fake news articles they normally argue against politically because they haven’t yet made the connection that all MSM is lies.
Byrne tried taking on the hedge funds and market makers by calling them out on their synthetic shares. They had chosen to short his company and kill it likely due to it being Amazon competition. Byrne tried to make them close out their naked shorts by issuing a crypto dividend. Unfortunately, when you control everything in the market you also control judges and courts. He ultimately lost and the practice continues today. For now.
Game over. Nothing can stop what is coming. Game stop.
That makes sense, especially considering the Amazon/CIA connection.
The most interesting comment in this entire thread.
It's a good point. I do remember Byrne talking about the shorts, and he was specifically talking about the naked shorts, not shorting in general.
I am in favor of shorting, and do it myself. I agree with you that it helps make the markets more liquid. Especially these days, when futures and other derivatives play such a big role. Those would not exist at all if shorting were not allowed.
It is the NAKED short selling that is potentially a serious problem. That's what this thread is about. Byrne explains how it is done -- and does so in a way that I have not seen anyone else do before.
True, he does not give every possible "proof" that he could. But his presentation jives with what I know about how the system works, so I buy into it (unless you can show how he is wrong).