Sacking the Treasury

Sacking the Treasury

It’s a form of Tuna, too. After the fall of Saddam Hussein’s government in Iraq, people went wild. They broke into every government building and the numerous Presidential Palaces and ransacked each one of them. The 24-hour News Stations aired footage of men carrying away filing cabinets and swivel office chairs and desks. Framed pictures, computers and copy machines were prized loot while the Capitol burned and the frenzy of liberation from one despotic regime to another took hold and the light of reason failed to illuminate the minds and hearts of men. No one was around to stop them or protect the assets of the once powerful totalitarian government. Somewhere around $600 billion in US currency likewise disappeared in the mêlée that went on for days until the elation ran out of steam and an uneasy quietness enveloped the country.

Years later the American financial architecture suffered a catastrophic failure that resembled the aftermath of carpet bombing from high overhead with munitions that targeted only the infrastructure while leaving the shocked and disoriented population largely intact and wondering exactly what had happened and when it would all be over. The zombie-like inhabitants of the nation wondered around in the metaphorical wasteland landscape looking for loved ones or serviceable objects to dust off and try to put to some further use. They ambled aimlessly around in the rubble of their once great nation with all cogent thoughts suitable shaken out of their heads. Others sat around their television and computer screens straining to hear some news that was good or to glean from millions of webpages some insights as to what was going to happen next.

While the shell-shocked people remained static, the predators moved in to clean out the accounts of the now ruined financial houses and banks that still had a mission to fulfill and a semblance of momentum to keep going. Government promised help in the form of taxpayer provided bailout funds and the predators kept draining the accounts. Men and women who specialized in economics and accounting principles and practices looked at the sinking financial companies and knew that there was money that was going to waste and it should be theirs. They placed Sell Orders in the still functioning stock markets for stocks that they did not own. Then as the prices continued to fall they repurchased those stocks and kept the difference in the two prices as their reward for being observant and capable of making such a deal work.

Each time the short-selling and the buying-to-cover transaction took place, the stock was worth less that it was before. Big corporate investors sold out early as the news of bailouts bolstered the prices for a few more days. The small investors who had their money in mutual funds that had bought into the failing institutions when they were doing quite well, sat in shocked inactivity not know whether it was good to sell their mutual fund shares or ride out the roller coaster trip and wait for a brighter day. Meanwhile the Short-sellers were looting the funds that held the life savings of millions of Americans who heeded the admonition to save for their retirements.

Short-sellers rationalize their plundering as a part of economic natural selection of survival of the fittest. They proclaim that they make the system more efficient by knocking down corporate stocks that are overvalued. They are only “right-sizing” the companies that they target. But for every dollar that the short-seller extracts as the stock prices falls from high prices of $60 to $100 per share down to sub-dollar and “penny-stock” status, some small investor who planned to retire on that money loses it. It would not be so bad if it was one mutual fund manager was shorting a stock to make income for his small investors, but in general, it is extremely wealthy investors who can chance investing in such schemes. The small conservative, risk-adverse, near-to-retirement investor simply cannot take the chance on such investments.

Somewhere in the vicinity of $2.7 Trillion worth of stock value evaporated between the November 4 National election and November 23, 2008. Mutual fund balances lost that value, as did the day traders and other serious investors who wanted to build an account balance. Not all of it, but it is fair to expect that a sizable share of that “lost value” was “found” by short-sellers who knew that the prices were going to continue to fall and did not want to “waste” that loss.

The Dow index bounces as the cycles continue to move through time. Each time the level reaches a new crest it is a lower number than the crest that preceded it. New lows are registered at the time the bounce begins and recovery could be imminent. Then just when the floor seems found, the bottom fall out once more. At or near the crest of these cycles the price is ripe for yet another round of short-selling that sucks a few more billion dollars from the accounts of hopeful investors.

This whole scenario is an example of it all being Tuna! The predatory investors are providing nothing of value to the economy, to the investors they prey upon, to the companies they target. All they are doing is deriving a profit from the misfortune of prior investors who cannot move swiftly to protect their funds.

In a well functioning economy with thousands of well performing companies, a few short sales here and there may indeed do what the short-sellers say their activities do, but while the entire global economy is in free-fall, all they are doing is looting the treasury and making the results exceedingly worse.