A recent surprise disclosure from the Goldman Sachs legal department has been interpreted by Matt Taibbi here as evidence that what has been thought of as an illegal stock trading strategy is actually a very real and current practice.
The topic of that disclosure was naked shorting.
Let's say there's a product on the market that you think is overpriced and you want a piece of the action. Naked shorting is a practice of "buying" what is not being sold, "owning" it without actually possessing it, convincing counter-patsies that you do own something, selling it to them on a promise of delivery, then flooding the market with the overpriced item to drive the price down, and then (the piece de resistance) "selling" the imaginary product at a profit when the price actually does fall.
It used to be that naked shorting was an obscure practice limited to penny stock scams. It was all part of the game. More recently the gold market has allegedly been a target to keep the price from blowing sky-high.
But looking beyond the shadowy world of small scale extra-legal pink sheet duplicity, this practice has morphed into the preferred business plan of a certain segment of the 1%.
Conventional "shorting" of a commodity or company is entirely legal and even beneficial activity, assuming shares exist that can be borrowed. That is, the requirement that there be a real product to short does function to maintain a semblance of a "real" price. An investor bets that the value of a stock will decline by first borrowing and then selling the stock at its current price, then returning the stock to your original lender after the price has gone down. You then earn a profit on the difference between the original price and the new, lower price.
But this practice has also been accompanied--just as on the long side of conventional trading--by insidious strategies to add un-real factors to drive the price down (or up) for personal gain--such as rumor, innuendo and outright lies. Either way, it's a form of front-running theft which seeks only to take money from your pocket and put it into mine. People have been fined, lost broker/trader licenses and gone to jail for this practice.
The modern conservative movement, from the Republican party to the 1% bankers to vulture capitalists such as Bain Capital, have fully adopted and refined the practice of naked shorting. Call it casino capitalism, vulture capitalism, whatever. The methodology and the outcome are the same. For them, it's far from an obscure and technical trading strategy. It's a core ethic, employed as predatory attacks designed to extract value from a product by manipulating the market for that product, whether it be a commodity, a relationship, any form of financial transaction, be it part of the real economy or not.
The more esoteric realms of manipulation occur via the secondary and tertiary phantom economies of "innovative" financial "products" (CDOs, swaps and derivatives). The products under extractive attack have gone beyond the commons, the commodity exchanges, the extractive algorithms of high-speed trading, the price of oil--all of which amount to Wall Street taxes on everyone else for primary requirements such as food and energy.
Now the naked shorting has extended, for example, to public education and the US Post Office. No one is holding out pieces of those public entities for conventional shorting. Yet while holding no personal stake in it, the price (perceived value) of public education, or even air, water and food safety is driven down, shaking out the stakeholders (local governments) and profiting by their demise (privatization). The entire model of conservative politics wedded to private equity has honed the practice to a fine art.
Where do we see this strategy in action? Everywhere we look:
--the Post Office, where legislation forced future pension funding far beyond current needs, forcing borrowing and thus driving down the solvency of the entire enterprise
--public education
--vulture capitalism- Stage Stores, Damon Corporation, Ampad, GS Technologies, Dade Behring, DDi and KB Toys are all businesses acquired by Bain Capital that filed for bankruptcy.
--the housing market via liar loans, forged documents, illegal foreclosure practices
--securitization of mortgages into toxic CDOs
--every attack on public employees, unions, wages, benefits, pensions is a shorting of human capital
--(We have to destroy these villages in order to save them!)-Medicare and Social Security
--voting rights
--the environment
--LIBOR-- here the collusion shorts ethics, values and law to further extract fees from those suckers called cities and states--while further inflating the bond bubble so that the gravy train keeps going.
Every one of these cases is, in essence, the story is the same: lie about and manipulate their value or stability, keep repeating the lie, extract "ownership" through shifty accounting, law, special access, short the future, short the efficient functioning of government, destroy the intrinsic value of the commons (natural capital), leading to the destruction of human capital... and all the while debasing our ethics, morality and disrupting our vital sense of community, commonality of purpose and destiny--our social capital--for the sake of one thing only-- short term financial gain.
This is Mitt's territory, the Naked Short; we see it all over his face; it's his home turf and what he knows best. This is what he offers and if he is given the chance, this is what we will get.