business model, page-5

Have a good luck at the spectrum of business reporters....


They occasionally take on issues of Public Appeal and national security.

There is no doubt but that the wave of short selling that has gone around the world is TERRORISM far more insidious than anything AL-Qaida may offer.

Michael West time and again has revelled in the news that MQG and BNB were under attack.

Was there a word of disapproval from MW?
No.

Does that make MW a willing accomplice?

Some reading on Short selling
Despite concerns about the market impacts of short selling, the government has said the issue is around the lack of disclosure, not the practice.

“I would like to stress that short selling is an important financial tool in promoting market efficiency and encouraging true stock prices,” said Senator Nick Sherry, minister for superannuation and corporate law said at the Riskmetrics Group Australia Governance Conference.

Senator Sherry said the key issue is the disclosure surrounding what’s being short-sold and whose involved. “The specific issue that has been raised is whether the short selling rules need to be tightened to resolve any ambiguity about the obligation to disclose short sales to the market, including those effectively facilitated by borrowed stock.”

Senator Sherry said the government is now considering introducing better transparency for short selling. A more considered approach is required because excessive regulation could damage Australia’s ability to attract foreign-sourced investment funds, he said.

Senator Sherry cited comments the Prime Minister Rudd made earlier this month in Britain: “We want to ensure that Australia's regulatory regime does not impose an undue burden on market participants or inappropriate barriers to foreign equity investment in the Australian market”.

Regulations concerning short selling are currently being reviewed by the Commonwealth Treasury and ASIC.

In the days when square-rigged galleons plied the spice route to the East, the Dutch outlawed a band of rebels that they feared might plunder their new-found riches.


Eric Thayer/Reuters
James S. Chanos, a well-known short seller.

Chip East/Reuters
John Paulson made billions last year by betting against subprime mortgages.

Matthew Cavanaugh/European Pressphoto Agency
Alan D. Schwartz, the chief executive of Bear Stearns.
The troublemakers were neither Barbary pirates nor Spanish spies — they were certain traders on the stock exchange in Amsterdam. Their offense: shorting the shares of the Dutch East India Company, purportedly the first company in the world to issue stock.
Short sellers, who sell assets like stocks in the hope that the price will fall, have been reviled ever since. England banned them for much of the 18th and 19th centuries. Napoleon deemed them enemies of the state. And Germany’s last kaiser enlisted them to attack American markets (or so some Americans feared).
Now short sellers are drawing fire once again, this time from some unexpected quarters. Across the world, these market bears are being accused of spreading rumors, persecuting companies and unsettling entire economies. Even on Wall Street, where money is seen as the ultimate measure of success, some wonder whether the shorts have gone too far.
Some Wall Street executives question whether unscrupulous short sellers caused the collapse of the investment bank Bear Stearns this year. Others complain that shorts have been telling lies about other major firms in an attempt to sink stock prices.
The uproar has drawn the attention of Washington. “This goes beyond rumors,” Senator Christopher J. Dodd said at a recent Senate hearing about Bear Stearns. “This is about collusion.”
Short sellers dismiss the idea that they killed off Bear Stearns. They say they often get the blame when things go wrong in the markets.
“Show me the evidence,” said James S. Chanos, one of Wall Street’s most prominent short sellers. “It’s always easier to blame someone else, some unnamed market force than the people responsible.”
Whatever the case, short sellers are coming under scrutiny. British regulators are looking into rumor mongering in London, Europe’s financial hub. The Financial Services Authority there recently took the unusual step of announcing that it would investigate how scuttlebutt spreads through the city. The regulator made it clear that it would cast a wide net to snare those who start what Sally Dewar, an F.S.A. managing director, called “completely unfounded rumors.”
Market watchdogs in Iceland, meantime, are looking into whether short sellers are behind a plunge in that tiny nation’s currency, the krona, which has lost a quarter of its value this year. Their counterparts in Ireland have started investigations into short selling and market rumors, too.
And in the United States, concern about short sellers’ growing power gained new urgency last week when the Securities and Exchange Commission accused a former trader of spreading rumors about a big takeover and then profiting from the ploy.
Granted, most kinds of short selling are perfectly legal. To sell short, traders typically borrow assets like stocks and sell them. If the price falls, the trader buys back the shares at a lower price and profits from the difference. Short sellers have always been viewed with suspicion because their style of trading seems to run counter to the essential optimism of the markets. After all, they win when other investors lose.
Short selling is drawing a lot of attention partly because it has become so prevalent. On the New York Stock Exchange, short selling is running near record levels. Just over 4 percent of all the shares on the Big Board were sold short as of March.
That figure, however, excludes many rapid trades made every day. Market makers, for example, often go short to ensure customers’ orders are filled quickly. And most hedge funds take short positions to offset their other bets in the markets. So, in all, short selling probably accounts for a quarter or more of all trading.
But another reason that shorts are drawing fire is that hedge funds that specialize in this kind of trading are making money — lots of it — at a time many other investors are losing. On average, short funds returned 7.43 percent during the first three months of this year, according to Hedge Fund Research, while the Standard & Poor’s 500-stock index fell almost 10 percent. And one hedge fund manager, John Paulson, made a staggering $3.7 billion last year by betting against subprime mortgages and the companies that make such home loans.
Many Wall Streeters have long argued that short selling is healthy for the markets. The practice tempers investors’ exuberance and helps market participants value securities properly. In the past few years, shorts warned about the troubles brewing at Enron and Tyco and also uncovered financial shenanigans at many small companies. As the financier Bernard M. Baruch once said, “A market without bears would be like a nation without a free press.”
Owen A. Lamont, a finance professor at the Yale School of Management, studied a group of companies that battled with short sellers and found that those companies’ share prices fell 42 percent on average over the next three years, suggesting their share prices were inflated, just as the shorts had claimed.
“When there is a big decline in the market, short sellers are often blamed,” said Mr. Lamont, who is also a money manager at DKR Capital Partners, a hedge fund.
Shorts certainly were criticized when Bear Stearns collapsed in March after what was essentially a bank run. Speculation about a cash shortage drove Bear stock down almost 60 percent in a few days, a decline that coincided with a surge in short bets against the firm’s stock. Alan D. Schwartz, the chief executive of Bear, later said that malicious rumors helped fuel the panic.
Other Wall Street banks have also been buffeted by short sellers this year. Shares of Lehman Brothers fell almost 40 percent the day before that investment bank reported earnings in March. “We are suspicious that the rumors are being promulgated by short sellers of our stock that have an economic self-interest,” a Lehman spokeswoman said at the time.
But Wall Street deals in rumors all the time. For regulators, the challenge is proving that short sellers tried to profit by spreading false information.
The complaint filed last week by the S.E.C. provides a rare glimpse into the Wall Street rumor machine. The commission said Paul S. Berliner, a trader for the New York trading firm Schottenfeld Group, used instant messages to spread rumors that the Blackstone Group was considering lowering its price for Alliance Data Systems, which it had agreed to acquire for about $6.4 billion last year.
“Hearing the board is now meeting on a revised proposal,” Mr. Berliner wrote shortly after 1 p.m. on Nov. 29. “Blackstone is negotiating a lower price.”
Mr. Berliner then began selling short 10,000 shares of Alliance Data, the S.E.C. said. As the stock fell, he turned a profit of $25,000 within 10 minutes on his short positions.




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In this world there is always danger for those who are afraid of it.

George Bernard Shaw


goodwill to all
malice to none