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May 16, 2012

Matt Taibbi: Goldman Sachs accidentally released reams of secret communications, admits to naked short selling

Read this. Seriously, read this. Naked short selling is a practice that when you describe it to grown-up adults they will not actually believe it to be legal. They will think you are crazy for suggesting it happens. But it does. A lot. And Matt Taibbi has the smoking gun to prove it. Accidentally Released - and Incredibly Embarrassing - Documents Show How Goldman et al Engaged in 'Naked Short Selling' | Matt Taibbi | Rolling Stone
A quick primer on what naked short selling is. First of all, short selling, which is a completely legal and even beneficial activity, is when an investor bets that the value of a stock will decline. You do this by first borrowing and then selling the stock at its current price, then returning the stock to your original lender after the price has gone down. You then earn a profit on the difference between the original price and the new, lower price. What matters here is the technical issue of how you borrow the stock. Typically, if you’re a hedge fund and you want to short a company, you go to some big-shot investment bank like Goldman or Morgan Stanley and place the order. They then go out into the world, find the shares of the stock you want to short, borrow them for you, then physically settle the trade later. But sometimes it’s not easy to find those shares to borrow. Sometimes the shares are controlled by investors who might have no interest in lending them out. Sometimes there’s such scarcity of borrowable shares that banks/brokers like Goldman have to pay a fee just to borrow the stock. These hard-to-borrow stocks, stocks that cost money to borrow, are called negative rebate stocks. In some cases, these negative rebate stocks cost so much just to borrow that a short-seller would need to see a real price drop of 35 percent in the stock just to break even. So how do you short a stock when you can’t find shares to borrow? Well, one solution is, you don’t even bother to borrow them. And then, when the trade is done, you don’t bother to deliver them. You just do the trade anyway without physically locating the stock. Thus in this document we have another former Merrill Pro president, Thomas Tranfaglia, saying in a 2005 email: “We are NOT borrowing negatives… I have made that clear from the beginning. Why would we want to borrow them? We want to fail them.” Trafaglia, in other words, didn’t want to bother paying the high cost of borrowing “negative rebate” stocks. Instead, he preferred to just sell stock he didn’t actually possess. That is what is meant by, “We want to fail them.” Trafaglia was talking about creating “fails” or “failed trades,” which is what happens when you don’t actually locate and borrow the stock within the time the law allows for trades to be settled. If this sounds complicated, just focus on this: naked short selling, in essence, is selling stock you do not have. If you don’t have to actually locate and borrow stock before you short it, you’re creating an artificial supply of stock shares.

May 15, 2012

How Yahoo killed Flickr and Lost the Internet Wars

This is a #longread full of object lessons in how a corporate strategy can utterly swamp and fuck up a project, especially when mixed when liars with forceful personalities. I still use Flickr for that oldest of reasons: I have friends who use it. And I don't like putting my photos on Facebook because I do not trust Facebook at all (which distrust they have earned, by constantly stealing user photos to use in ads). But I probably will not renew my Flickr Pro account because it just isn't worth it to me. There isn't value there anymore. How Yahoo Killed Flickr and Lost the Internet
Among other problems, it wouldn't let you upload several photos at once, you had to go in manually submit them one at a time. It was downscaling photos to 450 x 600, murdering image quality. Users had to log in via Safari rather than in the app itself. It was striping EXIF data from photos as they uploaded—precisely the kind of thing Flickr's photo nerds wanted to see. People. Fucking. Hated it. The app landed like a pile of mud on a wedding gown. As one App Store reviewer put it, "For uploading to Flickr, this is really the worst app I've tried; you're better off just emailing photos direct from the phone in that respect." It somehow managed to get Flickr's two key strengths—photo sharing and storage—completely wrong. Possibly worst of all—at least from a business perspective—you couldn't sign up for a Flickr account from the app. (In fact, you still can't. It kicks you over to the Web to sign up with Yahoo if you want to register as a new user.) While other apps draw users into their Web services (think Foursquare, Twitter, Facebook, and notably Instagram) the Flickr app that Yahoo Mobile rolled out had no mechanism for that. It was not a recruitment tool. It was just for existing users. "That was a big oversight," says Fake. That's an understatement. It was the mother of all fuckups.