PrefBlog

A correlation has been found between fails-to-deliver (associated with naked shorts) and the demised of Bear Stearns & Lehman:

As Lehman Brothers Holdings Inc. struggled to survive last year, as many as 32.8 million shares in the company were sold and not delivered to buyers on time as of Sept. 11, according to data compiled by the Securities and Exchange Commission and Bloomberg. That was a more than 57-fold increase over the prior year’s peak of 567,518 failed trades on July 30.

The SEC has linked such so-called fails-to-deliver to naked short selling, a strategy that can be used to manipulate markets. A fail-to-deliver is a trade that doesn’t settle within three days.
…
Twice last year, hundreds of thousands of failed trades coincided with widespread rumors about Lehman Brothers. Speculation that the company was being acquired at a discount and later that it was losing two trading partners both proved untrue.

After the 158-year-old investment bank collapsed in bankruptcy on Sept. 15, listing $613 billion in debt, former Chief Executive Officer Richard Fuld told a congressional panel on Oct. 6 that naked short sellers had midwifed his firm’s demise.

The Fed has announced:

that the set of eligible collateral for loans extended by the Term Asset-Backed Securities Loan Facility (TALF) is being expanded to include four additional categories of asset-backed securities (ABS):

• ABS backed by mortgage servicing advances
• ABS backed by loans or leases relating to business equipment
• ABS backed by leases of vehicle fleets
• ABS backed by floorplan loans

“Floorplan loans”, by the way, are loans made to auto dealers to finance inventory, secured by that inventory.

Another good day for prefs – PerpetualDiscounts are now up 1.89% Year-to-Date and up 5.20% from the low on March 10, but still down 5.36% from the high on January 13.

This entry was posted on Thursday, March 19th, 2009 at 7:08 pm and is filed under Market Action. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.