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Patrick Byrne, the CEO of Overstock.com discussed naked shorts, bust outs and economic warfare as a catalyst of transnational organized crime on the 17th of December 2013. His main objective was to create awareness and educate the masses on the powerful elements behind economic warfare. Starting off, Byrne referred to the terms fraud, securitization and settlement but placed more emphasis on the term settlement.
Settlement is a process in which when money and stock change hands. The investors and hedge funds are both represented by brokers who take the money from the investors and stock from the hedge funds but that’s not the concern at hand. The problem is that both these brokers are tied up by the DTCC (Depository Trust & Clearing Corporation). When a settlement is taking place, money and stock are not exchanging hands. Instead, the money is being funneled through various accounts present in the DTCC. Now sometimes, what happens is that hedge funds make mistakes when issuing shares. When they give out more share to an investor than what they already could, the entire settlement process does not become stagnant. Instead, artificial stock called FTD (failure to deliver) are given out which possess economic properties of real stock. However, FTDs can be manipulated (stock market manipulation) with extreme ease and according to Byrne, the people responsible for the economic collapse knew how to manipulate these much before the government about the FTDs existence.
Naked Short Selling
After discussing about the DTCC, Byrne brought forward the subject of naked short selling. In simple terms, naked short selling is an illegal practice of short selling shares that were not supposed to exist in the first place. What happens is that traders can borrow a stock, before these traders sell it short. The real reason why naked shorting is illegal because it allows manipulators (or the big guns with extremely large amounts of capital) to force the stock prices down of any entity without noticing its normal stock and demand supply patterns. The entity (or the company) after being forced to reduce its stock prices may easily become the center of a hostile takeover by an even larger, corporation.
Patrick Byrne explained the term ‘bust out’ in the most accurate way as possible. ‘Bust out’ is when a single individual attempts to apply for credit and in the process, utilize all of their existing credit. When it comes to paying regular bills, these individuals maintained a healthy reputation. However, after a short period of time, they would ignore the credit that was supposed to be paid and abandon it, resulting in a bust out. Byrne described the term as being a mafia term. According to his analysis, Patrick Byrne pointed out that there is a hidden and well-organized ring of hedge funds, regulators, law firms, and politicians that easily destroy companies through intricate investigations of law firms and regulators that report any discrepancies coming from the company. These discrepancies become the ‘Achilles heel’ for such companies and the organized ring extort such companies by forcing them to naked short sell, bust out and wait to be taken over.
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