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View Full Version : The biggest problem with the American Stock Markets



Farmersfan
09-22-2011, 09:17 AM
People have a lot of different reasons for why the stock market failed so miserably a few years ago and why it continues to struggle at times to this day. I have recently started devoting some time to trying to get to know how the OTCBB markets works because I felt that if Joe Blow could make millions here why couldn't someone like me do it also. Weighing the "What's right" vs the "What wins" attitude these days seems like a exercise in futility. A honest and moral person is far too often left in the dirt these days while the people willing to push the envelope and walk on the edge are the ones reaping the huge windfalls. My recent ventures into the penny stock or Over-The-Counter market revealed something to me that really sticks in my craw. Naked Short Selling! A lot of critics blame short sales as a major cause of market downturns, such as the crash in 1987 and 2008. Short selling has an even darker side because of a percentage of short sellers who are not above using unethical tactics to make a profit. It occurs when short sellers manipulate stock prices, usually on the OTCBB and Pink Sheets, by taking naked short positions (where they sell the stock without actually owning it) and then using a smear campaign on chat rooms to drive down the target stocks, where they then buy the stock at a big price differential from where they sold it short. Short selling is a tremendous problem on the OTCBB and the Pink Sheets, and one that doesn’t seem to have a good solution. My question is why would this be allowed in America? I know the Frankfurt exchanged made it illegal last year and several other exchanges are well on their way to preventing this. Seems to me the practice of selling something you don't already own should be considered fraud. These stocks are actually representative of ownership shares of a actual business/company that people devote their lives to and millions put their hard earned money into. Why would it be allowed for a company or individual to take a short position in this stock and then intentionally drive the price down in order to make a profit? How is this any different than someone intentionally doing something in your neighborhood to drive down your home value so they could buy it for a lesser price? When a person takes a long position in a stock they anticipate a positive gain in the value of the company which will benefit everyone involved, from the janitor of the company to the CEO. A downward movement of this stock harms all equally. But when the Short Sellers benefit from the movement of this stock price it is at the expense of everyone else involved. Their profit is dependant on everyone else losing money. They require that someone puts their hard earned dollars into the stock at a higher price so they can take that excess money for their profits. It seems to me to be a scam and I cannot think of a single logical reason why the SEC has not made it illegal. But we are talking about the SEC here! I recently (2 years ago) invested in a startup company that apparently sidestepped some SEC rules and got investigated. The SEC decided that the investors were not being served properly so they shut this thing down and hired a receivership company (lawyer) to gather all the assets to repay the investors. 2 years later the receivership company is still working on gathering the assets and is still billing for their time to the extent that now the total dollar value of every penny ever invested in this company would not cover the cost of the lawyers. In other words the SEC turned over the company to the Lawyers and said get what you can and keep what you get. All for the sake of the poor investors that were going to lose their money! OH yea! There was a 2 million dollar SEC fine that got paid first......................... Based on my research it appears that there is never an incident where the SEC shuts down a publicly traded company for rules violations where the investors ever got more than .5 on the dollar of their money back. The rest was eaten up by fines and lawyer's fees. Kind of hard to see where the SEC is serving the needs of the poor investors in this isn't it?

Farmersfan
09-23-2011, 10:32 AM
Apparently this isn't a subject of interest to anyone else on this forum but what the hell, It gives me a chance to vent. I discussed this very issue with a friend last night and he brought up a very interesting question. Should our Government monitor/restrict/regulate entities or businesses that are designed or exist solely for the purpose to earn profits from the hardships or failures of the citizens of this country a lot more harshly than other businesses? I have always felt that our banking industry has evolved into a predatory industry rather than a service oriented business as we are led to believe. I'm pretty sure a huge portion of the their profits are generated by late fees, overdraft fees and service charges. Most banks have implemented programs that actually encourage or precipitate overdrafts and late fees by their depositors. In fact BOA has recently been found liable in a Class Action lawsuit that states their practice of processing debit card transactions after hours and processing the larges first rather than in a FIFO (first in-first out) format has generated millions and millions of revenues for the company in unlawful overdraft fees and penalties. The underbelly of the credit industry is a multi-billion dollar industry these days that should be viewed as undesireable or predatory in nature and yet it seems just a part of the American way of life. Bad Debt collectors exist for no other reason than to try and collect on a defaulted debt that the creditor has already declared in a tax write off on their books which served as a means to cancel the tax requirements on some of their earnings. You ever wonder how a mortgage company can charge a person Mortgage Protection insurance and then report the entire balance as a bad debt when a default happens? The whole purpose of the mortgage protection insurance is to protect the lender from financial loss in a default. Yet the lender still reports a financial loss not only as a tax write off but to Trans Union! In most cases if a mortgage balance exceeds 80% of market value of the property the lender will require the insurance because they assume they can recoup their money from a sell of the property if the amount owed is below the market value of the property. What does all this mean? I think if they can justify the insurance requirement on a mortgage in good standing then why aren't they expected to handle the default in such a way that would allow the insurance and subsequent sell of the property to protect their interests? But they won't. They will sell the property to the highest bidder which in most cases is way below market value. That seems to me to indicate THEY made the decision to take a loss on the whole deal because they weren't willing to put in the effort to maximize the results of the sell. Why would that be held against the person who defaulted on the mortgage due to financial hardship? I have also often wondered how a mortgage company could refuse to renegotitate a mortage program with the homeowner and then turn around and take a big loss on it after a foreclosure. Why would they not be required to renegotitate the mortgage balance down to the level they would receive in a auction? If I understand it correctly the original homeowner is not allowed to bid on his own property in a foreclosure or bankruptcy auction! A complete stranger can acquire the property at 60% of what is owed against it but the original owner can never get a reduction to 60% of the original amount he owes. Seems like the interests of everyone involved would be better served in these cases to simply adjust outstanding balance of a mortgage to a level the owner could afford to continue to pay. Maybe that be too logical............

Any comments?
Any comments?