Short version: visit these two links. http://feeds.mn1.com/brookstreet_flabbergasted_after_liquidation_news.htm http://22.214.171.124/mp3/John_gittle_062207.mp3
I know from your emails that many of you are following my Mitzvah*. To bring new readers up to speed: I believe there is a crack in our financial system ("naked short selling") that has been manipulated by powerful financial elites in order to drain countless billions out of the savings of Americans; that the regulators charged with protecting Main Street from Wall Street have been captured by the interests they were supposed to be policing; and that the mainstream financial press are such lapdogs of the financial industry that they have not only failed to cover this scandal, some journalists have actually taken part in the cover-up. As a result, I think this country is at serious risk of seeing its financial system implode. As this situation becomes apparent to the public, either through the few honest investigative journalists (e.g., Bloomberg, Forbes.com) who are figuring it out, or through a financial collapse, then it will be the Yorktown of the 2.0 Revolution. (To learn more background, click here: http://www.overstock.com/cgi-bin/d2.cgi?SEC_IID=25194&PAGE=staticpopupfull&sta_id=11150&TRACK=FOOT_OI_L9
Events of potentially seismic significance occured this week. The chain of events has three steps, and runs like this:
1) Bear Stearns, one of the so-called "Bulge Bracket" Wall Street banks (which, I have alleged in a lawsuit, stands at the center of this activity), has two hedge funds with deep exposure in a type of investment called a "CMO". The details of CMO's can be learned elsewhere, but the main event is, they are investments that track the nation's housing industry. That industry is in a horrific downturn, and the CMO's are losing their value. Thus, Bear Stearns' hedge funds gushed losses to the point that other Wall Street firms with which they do business began pulling their credit and threatening to dump their collateral (personally, I suspect that most of Wall Street has exposure to the same problem, so this threat was like a bunch of bullies standing in a garage in an inch of gasoline threatening to throw lighted matches at each other). Technically Bear Stearns could walk away from its own hedge fund and let it collapse, but that would ruin them in the industry. So they have promised to inject $3.2 billion of their own money, or about 1/3 of the net worth of the mighty Bear Stearns, to keep their own hedge fund afloat and stop a run on the bank. Incidentally, that was all to save the smaller of their two disressed hedge funds.
2) This situation created a bit of a death spiral in CMO's (if someone who owns millions of bushels of corn looks like he is about to go under, then others know that those bushels of corn may soon be liquidated on the market, and hence, the current value of a bushel of corn will drop as well). Another broker-dealer named Brookstreet was heavily invested in CMO's. As their value declined, Brookstreet's net worth declined below $0, and they collapsed on Friday. In other words, Bear Stearns sneezed and Brookstreet caught pneumonia.
3) The collapse of Brookstreet is nothing to celebrate: 650 folks lose their jobs, for example. But Brookstreet is widely believed to be implicated in the issue that is at the heart of my Mitzvah (that is, widespread naked short selling). If this is true, it sets in motion a chain reaction: the firm through which Brookstreet "cleared" (that is, "did their buying and selling") becomes liable for the financial toxic waste Brookstreet leaves behind. That firm is Fidelity, which would either have to cover those losses (it is big enough to do so), or else, take over the cover-up of those losses. If it does the former, however, the very act of covering the losses will create losses for others (through a dynamic called a "short squeeze"), and the effects could ricochet around the system.
Of course, this is all conjecture, as no one on the outside knows the degree to which Brookstreet is, in fact, implicated in naked shorting. Even if they are, the chain reaction I describe could be slowed or halted by the regulators (and the SEC staff would probbly do so, as they are in-the-pocket of the people who would want them to stop this chain reaction). However, in my view, the SEC leadership (in particular, Chairman Cox and Commissioner Atkins) are smart guys who lately have shown spine in standing up for Main Street, even at the expense of Wall Street.
Lastly (and going back to my theme that the bloggers and non-mainstream media have connnected the dots better than the mainstream media), there is an online news site called "mn1.com" (it is a kind of online CNBC). They connected the dots first. http://feeds.mn1.com/brookstreet_flabbergasted_after_liquidation_news.htm http://126.96.36.199/mp3/John_gittle_062207.mp3
It is going to be an interesting summer.
* "Mitzvah" is a Hebrew word meaning (as I was taught, anyway) "obligatory good deed". For example, the "Ten Commandments" of the Old Testament are actually the ten Mitzvahs in the original (the word shows up in "Bar Mitzvah" and "Bat Mitzvah" as well). While at times my battle against Wall Street has been termed a "Jihad" (though I honestly do not remember who used that first, myself or my opponents), and later I called it a "Crusade," more recently I have settled on "Mitzvah" as the best term, as my actions sprring less from any fervor, passion, or desire than they do from a sense of obligation. Normal humans, when they see ordinary people getting kicked by powerful bullies, feel an obligation to intervene. Doing so seems to be the Mitzvah that has been thrust upon me of late.