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[Beginning of
Cramer's
verbatim
comments for
this segment...]
Jim:
The market has
been on a real
tear lately..
but that does
not mean that we
can afford to
forget about the
financial
chicanery that
almost destroyed
our financial
system earlier
in the year and
last fall… and
cost taxpayers
billions upon
billions of
dollars… and
what am I
talking about… I
am talking about
bear raids by
naked short
sellers… guys
who did not
borrow a stock,
who then slammed
it down… there
is nothing wrong
with normal
short selling…
where an
investor bets
against a stock
by borrowing
shares from
someone else,
make sure that
he has got the
stock, and then
selling it and
then hopefully
buying it back
at a lower
price.. that is
fine.. it has
been going on
for hundreds of
years.
But naked short
sellers, guys
who do not have
the stock
manipulate the
market by
banging it down,
without even
bothering to see
if there are any
shares to borrow
first… now, a
group of
Senators may
have found a
solution to this
problem… a so
called hard
locate system…
that will
require short
sellers to find
and identify
specific shares
of stocks, with
a unique id
number… before
the brokers
would be allowed
to execute the
trade… under the
current rules…
short sellers
just need to
have a
reasonable
believe that
they will be
able to deliver
the shares that
they are
selling… which
allows multiple
short sells of
the same stock…
to put it
simply… this
would stop
unscrupulous
hedge funds from
being able to
sell shares that
they ultimately
would not be
able to deliver…
that is market
manipulation as
far as I am
concerned.
Nobody should be
able to sell
something that
they do not own
unless they can
show that they
will be able to
deliver the
property with
the consent of
the actual
owner… pretty
simple… buyers
need confidence
that they will
get what they
are buying… and
the market needs
confidence that
the shorts are
not creating
shares out of
thin air and
then selling
them in order to
manipulate a
stock lower…
that is the kind
of market that
this hard locate
system could
make a reality…
I find it very
appealing… I am
not in a
position to
affect that
change… so let’s
talk to someone
who is… Senator
Ted Kaufman of
Delaware… one of
a group of seven
Senators who
sent a letter to
the SEC Chair
proposing this
solution…
Senator Kaufman,
welcome back to
Mad Money… thank
you for taking
the time to talk
to us about this
incredibly
important fight…
good to see you
sir.
Senator:
Thank you Jim,
and thank you
for letting me
back on again.
Jim:
Senator Kaufman
I have to tell
you, I am sure
that there are
people in the
SEC who will say
I do not know
why Senator
Kaufman is
bothering with
this… the market
is a bull market
again…
everything is
fine… what are
we worried
about… how do
you respond to
the possible
repose of, hey
what are you
worried about,
things are good?
Senator:
You and
I know,
somebody, and a
bunch of
somebody’s,
predatory bears,
made a lot of
money when the
market went
down. I mean a
lot of money.
And they have
got it all
there. And they
are sitting
there, and they
are just waiting
for another bull
market to do it
again. I mean
this does not
take rocket
science to
figure out that
there are people
out there that
is just waiting
for this to
happen. And if
we do not
institute some
of these
changes, to go
after this, so
that we cannot
have naked short
selling. And we
reinstitute the
uptick rule,
they are going
to be right back
at it doing it
again. And some
other major
institution like
Bear Stearns or
Lehman Brothers
going down the
shoot.
Jim:
Senator
Kaufman, I made
about half of my
money short
selling… when I
was a hedge fund
manager… and
here is what I
did… I would,
when I wanted to
sell something I
would call my
broker and I
would say I need
a locate on
10,000 shares of
Target (TGT), I want
to short Target…
they would then
call their back
office, find out
if there 10,000
shares to
borrow… they
would then give
me the okay, and
then I would
sell it… what
government, what
administration
took that
process away
that made so
much sense.
Senator:
Well,
you know that is
exactly what I
did. And that
was why I was so
shocked that I
found that you
could really
sell stock on
reasonable
believe. So no,
I… look a lot of
really bad
things went on.
It is not just
this as you
know. You know
SEC changed the
capital asset
ratio. We had
Madoff. We have
got over shade
of Standard and
Poor’s and
Moody's Corp. (MCO). There
was a whole
bunch of bad
decisions made
and this was
another bad
decision. And I
think that the
Chairman got it
right when she
said during her
nomination
hearings that we
have got to
reinstate the
uptick rule, and
we have got to
look at this.
And, so that is
what really
needs to happen.
Sure we made a
big mistake. But
as we all know
in every
management book,
the answer is
that you learn
from your
mistakes. So we
have to learn
from our
mistakes.
Jim:
Let’s go
back to that
reasonable
believe… if I am
a cockeyed
optimist about
the ability to
locate a stock
and a pessimist
about a company…
why do I even
have to, it is
just my own, hey
listen I can do
it… right?
Senator:
It is
exactly like
taking your car
title, printing
up three copies
of it and
selling it to
three different
people. I mean
it is total,
complete
speculation. You
do not have to
put anything up.
You do not have
to do anything.
And so it is
absolutely
speculation. It
is wrong.
Everybody knows
it is wrong. I
think that the
main thing that
they are trying
to figure out is
exactly what to
do. And that is
why I was so
excited when we
located the SEC and
talked to them
about something
to do about
this. Because
you know they do
all of the back
office work. So
our thought was
let’s talk to
them and see
what they come
up. And it was
really great
talking to them.
Because rarely
in this business
do you get
something that
looks like just
what you are
looking for.
Jim:
You are
absolutely
right. I thought
that this was
such a great
idea… my account
was at
Goldman Sachs (GS*), and I
would ask
Goldman to
locate the
stock… I wish
there had been a
uniform system
of location…
sounds like you
have identified
it… you have got
the solution.
Senator:
No, I
did the same
thing at
Merrill Lynch
(MER). I did it
for years. You
have to look at
it. But they
have got
everything on a
stock. And what
used to happen
on this Jim,
there would be
say 500 shares
of lets say
AT&T (T), I would go
and look in
there and say
okay I can sell
500 short. You
can go and look
in there and see
the same 500
shares, I can
sell 500 short.
Everybody can do
it. What this
thing now does
once someone
identifies 500
shares of AT&T
that they want
to sell short,
it gets taken
out of the
system so no one
else can do it.
So what you have
to do is, when
you actually go
to your broker
to sell it you
have got to have
a flag that
shows that the
SEC
is holding the
stock for you so
that you can
sell it. It is a
real simple
solution to the
problem. It is
not the only
solution. We
have got to do
some other
things too. We
have got to get
rid of this
pre-borrowing,
and do something
about uptick.
But it is a
really good shot
at ending this
thing.
Jim:
Senator
Kaufman,
concise,
fabulous
depiction and
description of a
way to stop this
nonsense. Thank
you for coming
on Mad Money.
Senator:
Thanks
Jim, keep it up.
▼ ▼
▼ ▼
▼
 Jim's
Comments After the
Interview:
We have got a
Senator is more
sophisticated than
pretty much anybody
in Washington… and I
hope that they
listen to him…
because if he does…
you will no longer
be ripped off… and
believe me, you were
ripped off… it was
total shenanigans
like he said…he can
put an end to this
particular
shenanigan… let’s be
on Senator Kaufman’s
side.
[verbatim recap]
[end of segment]
Read Jim's next Segment
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