by Michael Pennington 

THE FANNIE MAE & FREDDIE MAC BAILOUT

The Congressional hearing with Bernanke and Paulson last week was nothing short of ridiculous. The one thing it tells me is how desperate the financial elites are in covering up there mess. I’ll put the terms of this bailout in simplest terms I can. THERE ARE NO TERMS. These two private corporations now have the ability to write UNLIMITED checks for UNLIMITED amounts as long as they want to and whenever they want to. If they lose $2 billion in July, fine they write a check for it…if they want to provide their CEO with a $15 million bonus, fine they write a check for it. The only fight in Congress was that the Republicans wanted to put a MAXIMUM amount on this “Overdraft Loan”, while the Democrats wanted to provide an UNLIMITED loan ability. The Democratic controlled Congress won.  Just think if General Motors was given the ability to write unlimited checks for unlimited amounts without repercussions. Yet, Congress and the FED felt comfortable that they did not have to buyout the shareholders and call it what it really is and that is nationalization of the mortgage business.

THE NAKED SHORT SALE FIASCO

It is very interesting that part of the “Rescue Plan” announced was when SEC Commissioner announced a  “tough” regulation that would outlaw the naked short selling of Fannie, Freddie and other financials??? Excuse me but there already exists a law called, Regulation SHO,  banning naked short selling. It requires the delivery of shorted sales within a 12 day time period. The problem is that this regulation was never enforced. It was never enforced because the Wall Street guru’s and primary dealers were making so much money ripping off retail investors, the SEC just looked the other way. The Commissioner is now telling their buddies that they can’t continue to allow them to do this with these two securities. Of course, implied is that the SEC will continue to look the other way, especially if they are selling naked shorts in the gold and silver stocks.

“Naked short selling” is basically fraud. It destroys the value of the true existing shares, and possibly the company itself.  In a true short sale, the short seller is required to own shares in the company being shorted. Not so with a naked short sale. Someone creates NEW SHARES out of thin air in their name and then sells them for delivery to a BUYER. The BUYER pays for the shares, but never gets anything;  instead the broker registers a debt in the name of the original seller. This can happen over and over again so that there really is an UNLIMITED SUPPLY of stock that can be sold into the market.

It’s unbelievable to me that the regulators can crack down on naked shorts in the financials and not protect the rest of the market. If it’s a problem for some of the stocks, then I believe it’s a problem for all of the stocks. Personally, I have written the SEC before complaining about naked short interference in stocks I own, but they simply preferred to ignore that it even happened. They would refer to Regulation SHO as a deterrent from this happening. What a joke.