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SEC charges trading firm with naked short selling - YouTube
Channel: Fox Business
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CHARLES: SO LAST WEEK SEVERAL
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CHARLES: SO LAST WEEK SEVERAL
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WALL STREET BROKERAGE FIRMS
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QUIETLY TOOK STEPS TO STOP
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SHORTING OF REDDIT INVESTOR
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FAVORITES, CITIGROUP, JEFFRIES,
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TOOK ACTION, UNTIL FURTHER
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NOTICE JEFFREY鈥橲 PRIME BROKERAGE
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WILL NOT OFFER CUSTODY ON NAKED
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OPTIONS.
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HERE IS THE RUB, FOLKS, NAKED
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SHORTING WAS MADE ILLEGAL AFTER
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THE 2018-2009 FINANCIAL CRISIS.
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THE BIG QUESTION WHY IS THIS
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STILL HAPPENING?
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WE鈥橪L ASK AN ATTORNEY, AGAINST
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NAKED SHORT SELLING, WES
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CHRISTIAN WITH US.
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WES, IF YOU CAN, PEOPLE FROM THE
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AUDIENCE THAT ARE NOT FAMILIAR.
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WHAT IS NAKED SHORTING?
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>> THANKS, CHARLES, FOR HAVING
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ME.
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NAKED SHORTER SIMPLE VERSION,
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SELLER SELLS STOCK THEY DON鈥橳
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HAVE, BUYER SEES IT IN THE
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ACCOUNT ELECTRONICALLY, IT
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HASN鈥橳 BEEN DELIVERED, THE BUYER
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GIVES THE SELLER MONEY FOR
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ULTIMATELY NOTHING THAT WAS
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DELIVERED.
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THE SIMPLE VERSION WOULD BE, IF
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YOU AND I, CHARLES, TOOK OUR CAR
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TITLE AND XEROXED IT 100 TIMES
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AND SOLD IT TO 100 PEOPLE AND
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EACH OF THEM PAID US CASH, BUT
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WE ONLY HAD ONE CAR, THAT WOULD
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BE A GOOD ANALOGY SO WHAT NAKED
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SHORT-SELLING IS.
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TEXAS SIMPLE VERSION, WE CALL
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THAT STEALING.
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SO THAT IS WHAT NAKED SHORT
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SELLING IS.
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CHARLES:
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[LAUGHTER]
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THAT WOULD.
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CHARLES: THAT WOULD EXPLAIN HOW
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GAMESTOP WOULD SEE 140% FLOAT
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SHORTED.
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SAME STOCKS DEFACTO, BORROWED,
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NOT BORROWED, AGAIN AND AGAIN?
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>> NO DOUBT AND THERE IS REALLY
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MULTIPLE REASONS FOR WHY IT
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STILL EXISTS.
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ONE IT IS ENORMOUSLY LARGE
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PROBLEM, CONTRARY TO WHAT SOME
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OF THE OTHER FINANCIAL PRESS
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SAYS.
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FOR EXAMPLE, IN 1993 THE FAILS
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TO DELIVER WERE PROBABLY SEVERAL
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MILLION DOLLARS.
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BY 2003 THOSE FAILS TO DELIVER
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IN AGGREGATE WERE $6 BILLION.
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ACCORDING TO SUZANNE鈥橲 BOOK,
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NAKED SHORT AND GREEDY, CAME
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FROM THE SOURCE AT THE SEC, JUST
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IN TWO WEEKS IN JULY, THE FAILS
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TO DELIVER WERE $17 BILLION.
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SO AT THE END OF THE DAY,
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ANOTHER STUDY THAT DR. ROB
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SHAPIRO, FORMER UNDERSECRETARY
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OF COMMERCE DID MANY YEARS AGO,
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HE IS WITH SONOCON NOW, HE DID A
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STUDY, 500 MILLION TO A BILLION
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SHARES WERE NOT TIMELY
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DELIVERED, CHARLES.
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TO BE FAIR, IF YOU TAKE THAT OUT
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30 DAYS, 60 DAYS, FROM WHEN
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DELIVERY SHOULD HAVE OCCURRED,
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THAT NUMBER GOES TO ABOUT HALF.
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IT鈥橲 A SYSTEMIC PROBLEM.
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GO AHEAD, SORRY.
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CHARLES: SO NO, I DON鈥橳 WANT TO
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RUN OUT OF TIME AND I鈥橵E GOT A
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COUPLE OTHER THINGS.
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HEDGE FUNDS WE KNOW ARE BIG
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CULPRITS.
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WHAT IS GOING TO HAPPEN HERE?
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I GUESS CUT TO THE CHASE, WILL
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WE SEE THE SEC, WILL WE SEE,
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WHOEVER IS IN CHARGE TAKE ACTION
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ON SOMETHING THAT IS HAPPENING,
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IT IS DEEMED ILLEGAL, IT IS
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HARMFUL TO THE MARKET?
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WILL SOMEONE TAKE ACTION ON
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BEHALF OF INDIVIDUAL INVESTORS?
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>> I THINK WE鈥橰E SEEING A SEA
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CHANGE.
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THE REALITY IS WHO IS REALLY
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DOING MOST OF THIS FROM WHERE I
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SIT, IF YOU LOOK AT THE
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REGULATORY ACTIONS AT SEC.GOV,
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AND FINRA, REALLY THE PRIME
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BROKERS.
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REALITY THERE ARE SOME HEDGE
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FUNDS BUT THE PROP DESK OF THE
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PRIME BROKERS WHO ARE DOING THE
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NAKED SHORTING FROM WHERE I SIT
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OR MARKET MAKERS.
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AND SO ULTIMATELY THEY HAVE GOT
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TO BE LOOKED AT AND THE SEC HAS
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FINED A BUNCH OF THEM FOR
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MISMARKING TICKETS LONG WHEN
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THEY鈥橰E SHORT REALLY, FOR
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PRE-PROGRAMING COMPUTERS TO SAY,
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HARD TO BORROW STOCKS EASY TO
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BORROW BUT ULTIMATELY THERE IS A
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MOVEMENT AND A SEA CHANGE ABOUT
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NOT ONLY BECAUSE OF THE
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LITIGATION WE鈥橵E DONE FOR 20
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YEARS WITH OUR WHOLE LEGAL
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CONSORTIUM BUT BECAUSE OF THESE,
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THE REDDIT GROUPS AND SUBREDDIT
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GROUPS, FRANKLY MORE AWARENESS
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BEING BROUGHT TO THIS TOPIC.
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HOPEFULLY WITH THE NEW.
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SEC CHAIRMAN I AM HOPEFUL WILL
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DO SOMETHING MORE THAN WHAT HAS
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BEEN DONE TO DATE.
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CHARLES: YEAH.
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GENSLER MADE COMMENTS THAT GIVES
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ME HOPE AS WELL.
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EVERYONE KNOWS ABOUT THE
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PROBLEM.
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IT IS ALL ABOUT MONEY,
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WALL STREET MAKING MONEY AT THE
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EXPENSE OF A HONEST STOCK
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MARKET.
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WHY INDIVIDUAL INVESTORS SHUN
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THE MARKET, ONES THEY GET IN
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THEY GET VICTIMIZED.
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I WISH WE HAD MORE TIME BUT WE
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DON鈥橳.
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WES, WE HAVE A LOT OF PEOPLE
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LOOKING UP TO YOU CONTINUING THE
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20 YEARS WORTH OF WORK.
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I HOPE WE鈥橰E AT THE FINISH LINE.
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THE AUTHOR OF WAR ON SMALL
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BUSINESS, CAROL ROTH, YOU鈥橰E A
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WALL STREET BANKER AND YOU KNOW
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WHY DOES NAKED SHORT SELLING
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EXIST.
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>> FORMER RECOVERING INVESTMENT
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BANKER.
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THE PRACTICE OF NAKED SHORTING
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HAS BEEN ILLEGAL.
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IT HAS BEEN SO SINCE THE LAST
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GREAT RECESSION FINANCIAL CRISIS
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BUT LIKE ALL OF OUR REGULATION
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THERE IS ALWAYS LOOPHOLES AND
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THE LOOPHOLES RELATE TO MAKING
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MARKETS.
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THERE CAN BE AN ARGUMENT IT
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MAKES FOR MARKET MAKERS TO HAVE
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MORE FLEXIBILITY FOR LIQUIDITY.
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THEN THEY NEED TO ACT
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RESPONSIBLY.
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IF YOU鈥橰E LOOKING AT A
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DERIVATIVE PRODUCT AS A HEDGE,
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THAT MAKES SENSE BUT WHEN THE
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DERIVATIVE PRODUCT STARTS TO
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EXCEED THE MARKET FOR THAT WE
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SEE THE UNDERLYING PRODUCT IT IS
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TRYING TO HEDGE AGAINST IT IS NO
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LONGER A HEDGE.
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IT IS STRAIGHT UP GAMBLING.
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THAT SHOULD NOT BE ALLOWED.
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FRANKLY THAT IS WHY THE LAST
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FINANCIAL CRISIS WAS SO BAD
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BECAUSE THE SAME THING HAPPENED
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WITH CREDIT DEFAULT SWAPS THAT
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MADE THE MARKET SO MUCH LARGER
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THAN THE UNDERLYING MORTGAGE
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MARKET.
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CHARLES: YOU ALWAYS WANT TO GO
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BRING UP, I LET YOU DO THAT NOW,
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THAT THERE IS A DISTINCTION
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BETWEEN LEGAL SHORTING AND THIS
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NAKED SHORTING, RIGHT?
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>> YEAH.
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I THINK THAT鈥橲 BECAUSE THIS IS
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SO COMPLEX A LOT OF THESE TERMS
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GET CONVOLUTED.
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WHILE NAKED SHORT SOMETHING A
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BAD THING IN THE DISCUSSION
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AROUND DERIVES ACTIVITIES WE
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DON鈥橳 WANT TO THROW THE BABY OUT
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WITH THE BATH WATER.
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WE DON鈥橳 WANT TO SAY ALL SHORT
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SELL REMEMBERS BAD.
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THEY PROVIDE AN IMPORTANT
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FUNCTION.
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THEY UNCOVER INFORMATION IN THE
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MARKET ABOUT BROKEN BUSINESSES
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AND SOMETIMES FRAUD.
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CERTAINLY NOT EVERY SINGLE SHORT
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SELLER DOES THAT BUT IF YOU LOOK
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AT SOMEBODY LIKE MUDDY WATERS,
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WHO PUBLISHED THE ANONYMOUS
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PAPER EXPOSED LUKKEN COFFEE
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FRAUD EVERYONE WAS TAUGHTING IT
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THE NEXT STARBUCKS, WE WANT TO
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INCENTIVIZE PEOPLE TO CONTINUE
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DO DO THAT.
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THAT IS HARD JOB.
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NOT ONLY YOU HAVE TO BE RIGHT,
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YOUR TIMING HAS TO BE RIGHT.
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YOU HAVE A LOT OF MONEY AT
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STAKE.
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IT IS IMPORTANT TO DISTINGUISH
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FROM THAT FUNCTION VERSUS NAKED
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SHORTING.
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>> ONE THING TO DISTINCTION TO
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FINE THOSE THINGS AND ANOTHER TO
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BE THE WEAPON TO BLUDGEON THESE
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STOCKS.
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YOU KNOW ON FRIDAY BILL ACKMAN鈥橲
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SPAC GOT CLOBBERED.
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ITS WITH THE LATEST SPAC TO GET
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CRUSHED.
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THERE IS CLASS-ACTION LAWSUIT
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AGAINST VIRGIN GALACTIC.
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THE REASON I BRING THIS UP,
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CAROL, WALL STREET THEY GET TO
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CALL INDIVIDUAL INVESTORS THE
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DUMB MONEY AND THEY MAKE
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BILLIONS OF DOLLARS ON ALL KINDS
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OF DUBIOUS INVESTMENTS.
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YOU BROUGHT UP SOME BEFORE.
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I THINK IT BOTHERS ME THERE IS
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THIS SORT OF IF YOU BUY CERTAIN
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STOCKS YOU鈥橰E DUMB.
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IF YOU BUY OUR PRODUCTS AND THEY
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GO STRAIGHT DOWN WELL IT鈥橲 OKAY.
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>> YEAH.
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THEY USE THE PEJORATIVE TERM
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DUMB MONEY BECAUSE IF THEY
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CALLED THEM PEOPLE WHO WEREN鈥橳
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IN THE KNOW OR INSIDE THEN THE
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ENTIRE GAME WOULD BE EXPOSED,
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RIGHT?
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IT IS NO SECRET THAT MAIN STREET
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HAS BEEN SOLD OUT TO WALL STREET
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BY THE FED, BY THE GOVERNMENT,
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FOR MORE THAN A DECADE NOW AND
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IT CONTINUES AT AN ACCELERATING
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PACE.
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PEOPLE ARE MAD AND THEY SHOULD
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BE MAD.
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EVEN IF THEY DON鈥橳 UNDERSTAND
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THE UNDERLYING MECHANISM IT IS
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CLEAR THERE ARE ADVANTAGES,
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WHETHER IT IS SMALL BUSINESS
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VERSUS BIG BUSINESS, WHETHER
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RETAIL INVESTOR VERSUS THE
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INSIDER, IF YOU ARE NOT ON THE
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INSIDE WE DON鈥橳 HAVE A FREE AND
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FAIR MARKET.
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WE NEED TO GET BACK TO
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FREE-MARKET CAPITALISM WHERE THE
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GAME ISN鈥橳 BEING TILTED IN THE
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DIRECTION OF THE BIG PEOPLE WHO
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HAVE THE POWER AND THE CONTROL.
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CHARLES: YEAH.
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YOU WOULD THINK IN A BATTLE
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BETWEEN DAVID AND GOLIATH IT
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WOULD BE ENOUGH TO JUST BE
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GOLIATH BUT ALSO HAVE THE RULES
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IN YOUR FAVOR AND TO CHANGE THEM
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MID GAME, THAT IS A TOUGH ONE.
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