Alright, since @jughead-is-canonically-aroace asked me to explain this post too, I’ll try my best-
First, if you haven’t yet, I recommend you read https://bunnyapocalips.tumblr.com/post/641584251238809600/ill-try-to-keep-this-as-simple-as-possible-so-if “my” previous post, this should get you mostly up to speed even if you know next-to-nothing about stonks. It’s not 100% accurate for the sake of simplification, and the post I replied to has some inaccuracies, but it’ll get the job done.
Maximum ultra TL;DR at the top because I was asked to include those:
When everything is going right, all shares that are available on the market were directly issued by the company (in this case Gamestop) at some point, most commonly when they first became publicly traded. If the data in the reddit point is even close to accurate, there are FAR more shares on the market than should legally exist. Someone’s been printing fake shares.
This in all honesty is a lot more complicated than the “regular” stock market, so I’ll try to break it down as best as possible, but, you know.
So, coming back to naked shorts from the explanation I linked earlier: How do those even happen?
Someone borrows a share, sells it to someone else, then buys another one back later to give it to the person originally borrowed from. That’s a regular short.
In a naked short, you sell the share first, then only afterwards even try to find one to borrow (-that you already sold at this point), and you’re never buying one to “give back”, as there never was a person you borrowed from.
How does this happen? Nepotism!
(Graphic from: http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html )
(Image ID: At the bottom is a box labeled DTCC, it has arrows going out to boxes labeled Prime Broker A & Prime Broker B, those two boxes have more arrows going out to Customer A-1, A-2, B1-, and B-2)
In the USA, the entity presiding over all stock sales & keeping track of who owns what is the DTCC. The DTCC is a privately owned company.
The Primer Brokers are those 10-or-so companies that are officially licensed to sell actual stocks, the biggest of the big fish - if you ever buy a stock from a small company like RobinHood, chances are that the actual purchasing and transfer happens on the Prime Broker level, RobinHood just holds the information & gets a commission for enabling the sale.
Examples for Prime Brokers are Goldman Sachs; Merrill Lynch; Citigroup; Morgan Stanley; Bear Stearns - companies you’ve likely heard parodied or dunked on in media, they just make good “Evil Corporations behind everything” (because they are.)
Now, I mentioned that the DTCC is privately owned. Owned by whom?
: )
Owned by the Prime Brokers.
Can you already see where this is going?
The people **actually** owning, buying & selling shares are the Prime Brokers. The company that keeps track of transactions… is also owned by the Prime Brokers. The DTCC fights tooth and nail against any attempt to obtain information on its records or how it is run, subpoena or not.
How it works:
Customer A-1 wants to buy a share, Customer A-2 wants to sell a share.
The Prime Broker sells a share to Customer A-1, and buys it from A-2.
The net amount of shares in the market stays the same.
At the end of the day, the Primer Broker sends a list of all transactions to the DTCC - in theory, the number of shares should always be the same, since if someone buys, someone has to sell, right?
Now shorts enter the market. Prime Broker A wants to short a company. It sells a “””borrowed””” share to Customer A-2. It then tries its absolute “”””hardest”””” to look for a suitable share to borrow after the fact. But damn, these record halls are really dusty, oh well, can’t find one at the moment. - But Customer A-2 still paid for a share, after all. So to protect Customer A-2, the transaction is still considered valid, even after Prime Broker A Failed-To-Deliver the borrowed share.
The record of this transaction is only sent to the DTCC at the end of the day.
Ah damn, well we already closed the office lads, and A-2 did pay for it, so guess we can’t really do anything, sorry, our hands are tied, we directly lobbied for the legislation that tied our hands in this situation, truly sorry.
The net amount of shares in the market increases by +1.
There is now a counterfeit stock on the market. But A-2 did pay for it, and we wouldn’t EVER strip a paying customer of their deserved products, Wallstreet never fucks you over.
There’s been various amounts of legislation to try to stop this, mostly in 2005 and 2008 after VW respectively, but all they really did was cause the big guys to use other loopholes. The practice of naked shorting & counterfeiting shares (which are usually one and the same) is still very much alive.
Which leads us back to gamestop, and the reddit post above.
The SEC, ineffective as it might be, at least.. well no it doesn’t really try. But it does keep some data around. Namely, it keeps a list of companies that had a lot of failed-to-deliver shares - so what I described earlier. Note that all the shares are still considered valid, since they were paid for with real money, but they’re fake - they were never issued by the company.
Leading us to this graph:
A “regular” company that is being illegally shorted might have a few thousand failed-to-deliver shares a month.
To quote the reddit thread:
“For example, two random companies: Lowes ($LOW, ~$125B market cap) had 13,960 shares fail to be delivered at its highest point that month, Boston Beer Company ($SAM, $11.5B market cap) had 295 shares fail to be delivered.How many shares of GME failed to deliver? 1,787,191.”
1,787,191 counterfeited shares. GameStop only issued 72 Million shares ever. Almost 2 million shares were counterfeited in December alone. Remember that all this really blew up in January.
The thread then goes on to spitball some math and guesstimates, but even with the hard numbers we have from the SEC - an absolutely exceptional number of shares, higher than effectively any other company, are counterfeited, and used explicitly to short the company.
This means that the Big Funds have not only been trying to drive the company to ruin for years, they’ve counterfeited an incredible amount of shares that should not exist to do so. This is a level of crime on exactly the same level as printing counterfeit cash.
The only one that would know the actual numbers is the DTCC, owned by the very same companies creating the “fake” shares & using them to short GameStop in the first place, so barring some truly exceptional circumstances it is unlikely that we will ever know the full extent.
But these are exceptional circumstances. The Mainstream Media, very clearly in the pocket of Wallstreet (Shoutout (derogative) to CNBC here, honorary mentions to Bloomberg), is trying its absolut hardest to get people to sell, to downplay the extent of what is happening here. And now we, possibly, know why. Because THIS is so unbelievably illegal that all the also incredibly illegal things that have already happened are basically peanuts in comparison. (Anyone reminded of, you know, the last few years?)
So there you have it! The GameStop hole is even more illegal and worrying than we could have ever assumed, because it’s looking like there are far more than 100% of legitimately issued shares in circulation, and still there are more shorts (120%) than those shares can account for.
In theory, this just went from “Hedgefunds bleed and Bankers have to sell their third house” to “Half of Wallstreet goes to jail and the fundamental structure of the US stock market gets restructured with the DTCC broken up or converted into a federal institute” (This is just my, european, hope for what should happen.)
This topic is honestly VERY complicated and somewhat intentionally inaccessible, but if you want to know more, I do recommend reading http://counterfeitingstock.com/CS2.0/CounterfeitingStock.html and just trying to wrap your head around it.
Reblogging it again in an attempt to get it to show up in the notes. Sorry.
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