DeepCapture has a good presentation of how Failure to Delivers destroy equity in this graph of the fall of WaMu. A Failure to Deliver shows up three days after a transaction.
An FTD happens when the person purchasing a stock does not receive the stock purchased. The FTDs in the collapse of WaMu are phantom shares. The ability of brokerage firms to create phantom shares added 50% to the decline in the stock accelerating the demise of WaMu.
As noted in Disciplined Shorts, there are two ways to cause an FTD. You can sell a stock without bothering to locate the a share to sell. Or you borrow a share, and that share gets sold before you buy back.
It is a joke that such a system happens in this world of real time communications. The regulators have rigged the game to transfer massive sums of capital from investors to hedgefunds and brokers. The system of regulations that have been designed jointly by our Democratic and Republican leaders is the leading cause of the growing gap between rich and poor.
BTW, I am not impressed by the fact that Warren Buffet is Obama's advisor as he has proven to be adept at manipulating the system to his advantage. Buffet's game is that of a takeover artist. I would want an advisory board with people whose primary concern is building and creating new technologies, rather than people skilled at taking over the creations of others.
You've sold me. Shorting should be disallowed except for when shares are actually transferred.
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