Freddie, Fannie, and Naked Shorts -- Explained

Oil rises as Dolly threatens Gulf of Mexico
NEW YORK (Reuters) - Oil rose on Monday as Tropical Storm Dolly barreled into the Gulf of Mexico, stoking concerns of disruptions to U.S. offshore oil and gas production.

U.S. crude settled up $2.16 at $131.04 a barrel after concerns about U.S. demand knocked prices from record highs over $147 a barrel last week. London Brent crude rose $2.42 to settle at $132.61 a barrel.

The U.S. National Hurricane Center warned the storm could reach hurricane strength on Tuesday. The U.S. Energy Information Administration said on its current path, Dolly was likely to miss major oil producing areas but could threaten some coastal refineries later in the week.
http://biz.yahoo.com/rb/080721/markets_oil.html


Fannie Mae and Freddie Mac - End of illusions [A MUST READ]
After a headlong plunge in the two firms’ share prices (see chart 1), Hank Paulson, the treasury secretary, felt obliged to make an emergency announcement on July 13th. He will seek Congress’s approval for extending the Treasury’s credit lines to the pair and even buying their shares if necessary. Separately, the Federal Reserve said Fannie and Freddie could get financing at its discount window, a privilege previously available only to banks.

The absurdity of this situation was highlighted by the way the discount window works. The Fed does not just accept any old assets as collateral; it wants assets that are “safe”. As well as Treasury bonds, it is willing to accept paper issued by “government-sponsored enterprises” (GSEs). But the two most prominent GSEs are Fannie Mae and Freddie Mac. In theory, therefore, the two companies could issue their own debt and exchange it for loans from the government—the equivalent of having access to the printing press.
http://www.economist.com/finance/displaystory.cfm?story_id=11751139


Eat My Shorts! A Naked Shorting Primer for CEOs. [A MUST READ]
In its simplest terms, naked shorting involves selling shares of stock that don’t exist. It’s performed routinely by market-makers to keep an orderly market, but it is illegal when done to manipulate a company’s stock price. Only when someone intends to drive down the stock price is naked shorting breaking the law. Throughout the rest of this overview, any reference to naked shorting will refer to the illegal variety.

It’s also worth noting the important distinction between shorting and naked shorting. The former is perfectly legal and occurs extensively as either a way for an investor to mitigate risk or as a bet that a company’s share price will decrease (i.e. the short-seller or “short” believes the company is overvalued). Despite the wary glances often cast upon them, shorts are an essential part of a robust market and are often the first to discover financial fraud, as in the case of Enron.

A short will sell borrowed shares as a bet against a company because he believes the price will eventually drop. These borrowed shares come from his broker, which loans the short a certain number of shares (not dollars). As soon as the short receives the borrowed shares in his account, he sells them immediately for cash, which goes to his brokerage account. The short still has that pesky loan to pay back, though, and does so by waiting for the price of the stock to drop. Then he buys some cheaper shares using money from the same pool of cash he received after the original sale, gives the broker his shares back, and keeps whatever cash is left in his account.

Naked shorts, in contrast, are much more manipulative – they sell short shares that don’t exist and then attempt to actively lower the company’s share price through constant short-selling pressure. By using pretend shares, of which there is an unlimited supply, naked shorts can effectively control the share price through this constant pressure, eventually driving the price of a company’s shares into the basement.

Where do these fake shares come from? Naked shorts can create them out of thin air, depending on your point of view, due to either (a) glaring inefficiencies in the back-office world of certificate transfers, or (b) institutionalized fraud on a massive scale. Either way, the effects can be disastrous for companies who are victimized.
http://www.americanmicrocaps.com:80/featuredcolumn2.htm


Gold price manipulation is spelled out to CFTC
A financial planner from Chicago, Marcus C. Rodriguez, has written a wonderful letter to the U.S. Commodity Futures Trading Commission documenting the manipulation of the price of gold on U.S. commodities exchanges and urging the commission to compare that manipulation with the huge gold derivative positions held by JPMorganChase, Bank of America, and Citibank. It could only help if other Americans wrote to the CFTC in support of an investigation of the issue Rodriguez has raised.

You can find Rodriguez's letter to the CFTC here:
http://www.gata.org/files/RodriguezLetterCFTC07-20-2008.pdf