Blog on the Run: Reloaded

Thursday, August 27, 2009 8:16 pm

Not just a fine. Time.

Tyler Durden of Zero Hedge on Bank of America’s legal problems — and, possibly, BofA’s lawyers’ legal problems — regarding what it told (or didn’t tell) its shareholders about the Merrill Lynch takeover:

The bottom line is that either Bank of America’s executive committee, or as the [Securities and Exchange Commission] claims, the lawyers advising it

… whom Durden identifies as the firm of Wachtell Lipton in general and partner Ed Herlihy in particular …

were responsible for one of the most blatant public filing misrepresentations in history. A $33 million slap on the wrist which comes out of BAC’s troubled investors and, by [extension], taxpayers, is a ludicrous way to “punish” those responsible. The Attorney General must see through the smoke and mirrors of this scam and has to seek criminal punishment for whoever ends up being the responsible party in this “hot potato” blame game.

Word. If we’re going to have long-term economic stability, we need to unrig the rigged game that investing has become, particularly when taxpayer dollars are involved. And the best way to do that is by packing the riggers off to prison, rather than looking the other way, as the SEC usually does, when huge crimes are committed.

Karl Denninger identifies another likely case (h/t: baum):

I [ran a search for] the highest-volume stocks with prices over ten cents (to exclude the little penny pumper stocks on the OTC market.)

Well gee, let’s add this up!

That would be about 2.126 billion shares in total for these four stocks, two of which (Fannie and Freddie) are so far underwater in their equity value (to the government no less!) that there is no chance they’re worth anything, yet they remain listed, and the other two are zombie banks with Citibank existing only because of $300 billion in asset guarantees by The Fed and Treasury (which, incidentally, is under investigation, and that assumes that the $300 billion is all there is. There is persistent chatter that the real amount of “back door support” that Citibank (C) has is closer to a cool trillion dollars, although I’ve never been able to get anyone to speak on the record in that regard.)

But I digress.

Here is the NYSE Volume for Tuesday – for all shares, right off NYSE Euronext’s page:

So let me see if I get this right. 2.126 billion shares traded in four stocks, two of which that accounted for some 900 million of those shares are in companies that by any measure of accounting have absolutely zero common equity value whatsoever (and never will under any rational view of the future), yet NYSE Euronext continues to list them.

These four stocks represented thirty seven percent of all shares traded Tuesday. …

If there was ever an argument to be made for the NYSE having turned into a gigantic “hot potato” parlor game, this is it – in your face in an impossible-to-explain-away fashion.

NYSE Euronext, of course, derives a fee from each share traded, so they have to love this sort of thing. The ordinary investor who has a brain sees it as an amusing sideshow, but the unfortunate fool who gets sucked into the maelstrom is going to get destroyed when the computers move on to some other issue and the price collapses as there is no authentic bid out there for any of this crap.

Beware. This is the sort of cheap parlor game that our capital markets have turned into as a direct and proximate result of our so-called “regulators” turning a willful blind eye while supposed “improvements” in liquidity and “customer access” are put in place by those who have one singular purpose in mind – find a way to steal a fraction of a penny at a time by playing “hot potato” with a handful of issues (sometimes starting a nice juicy rumor to go with it, aka the one last week about BAC allegedly being taken out by Goldman just to prime the pump a bit!) hoping that you will be the bagholder upon whom they can unload.

I certainly hope the companies that manage my (now significantly depleted) retirement and college savings know what the hell’s going on and are acting accordingly.

And this, too, has to be a crime, yet the government does nothing about it.

And on a philosophical level, how can anyone possibly call this anything approaching a free market?

And if no one can, then why aren’t the advocates of free markets screaming bloody murder about this? Is it because they don’t get it? Is it because they’re hypocrites? Or is it because they think they’ve got an edge in this rigged game, that when the music stops they won’t be “the bagholder upon whom they can unload”?

They need to stop kidding themselves. There is nowhere near enough room to keep every free-market advocate in this country, myself included, safe from exposure.

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