Friday, October 16, 2009

In Defense of a Lady

Patrick Byrne, chairman and CEO of, Inc., has attacked Lila Rajiva and me for a post she made on her blog referencing and excerpting from one of my Matt Taibbi posts.

Although, I have never followed Byrne's ranting and ravings in detail, I am aware that he has been leading a near one man crusade against naked short-selling. On this limited bit of information, I have always considered him somewhere between an eccentric and a nut job.

Judging from Lila's post she has had about as much interest in Byrne as I have had.

Nevertheless, Byrne has chosen to attack Lila. He comments on her blog post and signs his comment with the identifier, "Journalist,". Deep Capture was founded by Byrne mostly to promote his, and fellow travelers , conspiracy theories about the financial world. Some of Deep Capture's reporting is very interesting, some of it is off the wall. But, hey, if Byrne wants to identify himself as simply, "Journalist" , I have no problem with this, although judging by Byrne's attack style, if he came across an attack target that was a founder of a web site who identified himself as just a journalist, Byrne would probably have 10 to 12 pages of attack on the maneuver along the lines "this guy is pretending to be a journalist, as though some independent party analyzed his work and deemed his writing worthy of publication. It is pure deception that he does not identify himself as founder and thus put into true perspective what his title as journalist means under these circumstances as founder."

But, hey, that's the sense I get from Byrne's style of argument, but I won't go there and attack him that way.

In his attack on Lila and me, he begins: BEWARE ALL READERS

He continues:
You can imagine that if a journalist uncovers a loophole through which wealthy, powerful interests are stealing money, those interests will organize a disinformation campaign to block their exposure (perhaps written in weasel-words that a layman would not catch). Please be aware that this post (and the Robert Wenzel post from which it draws) is precisely this form of nonsense. No evidence has been adduced to show that Taibbi’s video is “faked”, not wtihstanding the cottage industry which has suddenly emerged to blog about this as though it were an accepted fact (a common technique in such cover-ups). These guys simply blow smoke and run straw man arguments in an attempt to confuse the public.
He tells us that deep dark interests would attempt to battle Taibbi. And implies that these deep dark interests have decided to employ Lila and me as their conduits. LOL.

Let me tell you something, even bloggers who I generally tend to agree with are probably nervous about getting too close to me, and wouldn't try and tell me what to post.

The chance that some black hat operator is going to be comfortable approaching me to attack Taibbi is absurd. I rip the penultimate black hat operator Goldman Sachs regularly. I don't think I have ever said a good thing about them. And, I am not a fan of naked short-sellers. Indeed, the best piece I think I have ever seen on naked short-selling is the book length piece written by Mark Mitchell posted at Byrne's site and I said so at part of the post that Byrne hints was influenced by "interests organized' and bent on creating disinformation campaigns. Makes you wonder if he even read my complete post before attacking it as part of an organized campaign by naked short-sellers

My post was nothing of the kind. I just think Taibbi did a sloppy job in his reporting and I feared his piece would be blown to smithereens, as it was by Penson's letter to the SEC. In fact, Lila actually quotes the part of my post wher e I say Taibbi critic John Carney is correct about Taibbi but incorrect when he says naked short-selling does not go on. I wrote:
Carney is a sharp guy, and he has Taibbi nailed on this one, but, I repeat, naked short selling, like a lot of Wall Street, is a very complex game. Carney in some of his other posts suggests there is nothing wrong with naked short-selling, he is off on that one. Some of it can be justified as simple market maker operations, but some of it is major league abuse by very clever insiders, which is the point Taibbi is taking, but doesn't have the knowledge to back up properly.
Does this sound like I am in league with naked short sellers?

Yet, Byrne attacks my post, hinting that I am influenced by dark forces, even after, and I repeat, I caution about the total value of Carney's posts, because he tends to support naked short sellers, and I close my post by writing that anyone who really wants to understand naked short selling should read the book length piece written by Mark Mitchell and posted at Byrne's site!

Byrne goes on:
For example, Wenzel’s original post says “Now the problem with Tabbibi’s video is that it is bogus. There is no firm in the world that is going to take, or be able to execute, a multi-billion share trade in a matter of seconds.”

The problem with this defense is that the video does not purport to show a multi-billion share trade being “executed,” and Taibbi does not say that it does. The trade that is EXECUTED is only for 100 shares (as Taibbi correctly states): what is demonstrated in the video, however, and the point of Taibbi’s blog, is that a LOCATE was given for a multibillion share order.

Wenzel’s looseness with terms is impossible to consider accidental: this is just more weasel-worded response, similar to the weasel-worded letter from Penson to the SEC denying the video (but written with enough weasel-wording that most of the public would not understand that it was a non-denial denial).
Now, I said the video posted by Taibbi is bogus, that doesn't leave a lot of room for weasel words. It's bogus. I should add that I use the term bogus in the modern sense of having no value , that is, being useless, as in, "This class is bogus." The video is useless, since there is no way that a report on a locate from Penson would come back within seconds on a hard to short stock, much less for "tens of billions of shares", never mind a sale taking place.

Further, if there is a looseness of words it comes from Taibbi who writes at one point:
:17 At seventeen seconds, at the bottom, you see that the firm Penson has now approved the trade and” located” the multi billion amount of shares. The trade goes through.
The great wordsmith Taibbi writes a paragraph where he is not clear what the hell he is talking about. Does he mean a short sale for 100 shares went off, or is he so confused that he actually thinks a ten billion short-sale went off? Or is he being slick, talking about one thing "tens of billions of naked shorts" while knowing full well that in his foggy writing his fall back position is, hey, I was talking about 100 shares? But why would he talk about 100 shares going off? This has nothing to do with a "tens of billions" trade. It makes it a bogus discussion

As I explained to Lila in an email, showing that you can sell short 100 shares of a stock, and then claiming that this in any way proves you will be able to sell short on a naked basis "tens of billions" of shares is like going into Bloomingdales buying a pair of socks with a credit card and claiming that therefore you can go up to the clerk, tell the clerk you want to buy everything in the store, and that the clerk will then begin scanning everything in the store and at the end, everything will be peachy dandy, your card will be swiped and just like the purchase of the socks, you now have purchased everything in the store. Patrick not only is the tape bogus, but the implication, that Taibbi tried to make, that tens of billions of shares of a bank stock could be sold short on a naked basis in the manner suggested is bogus.

My looseness of terms? Buddy, it's pretty clear what I think. Taibbi is all over the place because he really doesn't know what the hell he is talking about, is intentionally misleading, or both.

As for you, why you go after Lila, I have no clue.

She basically just took an excerpt from me. Why didn't you come on over here and make a comment? I think you owe her an apology. Further, I note that since Penson has reported the incident to the SEC, Taibbi has not come out in anyway to defend himself against Penson's charges of a likely hoax. It's now clear that in addition to the video being bogus, it is a fake, a phony. Penson states in its letter to the SEC that no such locate took place at the time stated on the video. Or do you think Penson is lying to the SEC? I don't.

Patrick, there are naked short selling abuses that do occur. Far fewer, however, than what my guess is you believe. As far as your suggestion that I am a tool of some dark forces (Even though I recommend a paper found at your site in my conclusion of the discussed post and I hedge my endorsement of Carney's argument because he sees no problem with naked short selling ), you are so off base that I am getting closer to placing you more on the nut job end of the scale than eccentric. Before you attack, get all the facts. The world is not one big naked short selling conspiracy. It's a problem, but so is syphilis. I just don't see syphilis germs or naked short sellers around every corner. Or in every sandwich I eat, or post I read.

So come over here, Patrick, where the big boys play, and post your absurd hints and innuendos that Lila and I are in the employ of this hippopotamus like naked short selling cabal. Let's see what my readers think.


  1. What a debate! At least people and publications and movies ("Stock Shock-the short selling of the American dream" on DVD) are talking about naked short selling!

  2. Bob -

    Thanks for the defense..
    It's OK. I've wondered aloud about disinformation from writers too, though I usually don't post warnings on their property about it.

    But you know, it really doesn't matter. The more the public starts actually looking at what's going on on Wall Street - they more they're going to lose their credulous respect for these guys.
    The first billionaire has been rounded up (he's an Indian guy)..
    that's a start. Now, when are they going after the others...


  3. Hang in their guys, this is just what Patrick Byrne does - harass critics. He's defending his video venomously even at small blogs. And for the record, I found his message to Lila to be ominous if not somewhat threatening.


  4. Credible is as credible does.-Forrest Gump

    Of course the video is a fake. That kind of journalism lost Dan Rather his job. It makes Al Gore look manipulative.

  5. Matt Taibbi's video is not a hoax. The claims that it is a fake are cleverly-parsed statements that slide by newcomers.

    Demonstrating the slop in the locate system does not demand that an impossibly large trade be executed: what is at issue is that a locate was granted for a multibillion share trade. Similarly, Penson's letter to the SEC contains similar non-denial denials hanging on the the fact that they were the clearing broker and not the executing broker in the trade.

    If you do not know what these statements mean, you are one of the ones being gulled by a Chewbacca Defense.

    Patrick Byrne

  6. Mr. Robert Wenzel,

    Just an anon concerned American citizen here who is very interested in the abusive NSS issue. Much of Byrne's theory about what's been going on in the financial markets the last several years makes a lot of sense to me (if you can get past the inherent doom & gloominess of it). Basically, if Byrne is correct, it would seem that organized crime has fiduciary control over a good portion of the financial market infrastructure in the USA. I'm not sure if I believe all of Bryne's claims, but I believe there has to be a great deal of truth to his ideas on abusive NSS. You have to admit that the NSS conspiracy theory has gained alot of traction since the market crumbled last year. It is unfortunate that there has not been a significant reigning in of the Market Makers' authority to wreak havoc since last year's crash.

    But I digress to the point of this post... As I understand it, trading data is not shared outside DTCC. As I read you, you acknowledge that abusive NSS is a problem, but then in the next breath you seem intent to marginalize the extent of the problem. How is it that you know how big the abusive NSS problem is or is not? Please explain how you arrived at the conclusion that abusive NSS is a non-issue?

    I hope I can trouble you to answer a couple of other related questions as well...
    1. Why shouldn't everyone be required to locate what they intend to short sell?
    2. Why shouldn't everyone be required to deliver what they sell?

    You got what you say you wanted: a retort from Patrick Byrne. I, for one, eagerly await your return volley.

    P.S. Abusive NSS = NSS as far as I can tell unless you can provide an honest answer to 1 & 2 above.


  7. How is it that you know how big the abusive NSS problem is or is not? Please explain how you arrived at the conclusion that abusive NSS is a non-issue.

    I didn't say it was a non-issue just way overblown. I have seen the Bear Stearns problems and Lehman collapse blamed on NSS. It was the pulling of credit. Players could have sold Bear and Lehman short from now to the end of time and that wouldn't have damaged the internal operations.


    I belive it makes sense to have exchanges where certs are required to be delivered when asked for.

  8. Wenzel,

    You are a gentleman AND a scholar. This post proves it.