Monday, June 29, 2009

The Deep Capture of Dendreon

Deep Capture is serializing an account of the Naked Short Attack Against Dendreon. It is high drama in the financial world as the ruling elite at NBC, hedgefunds and regulatory agencies take down a promising cancer treatment ... making huge financial gains.

The article is critical of a regulation built into the market called the "Madoff Exception." This exception was named for a little known progressive businessman named Bernard Madoff. Madoff was instrumental in establishing the internal regulating mechnisms within NASDAQ. He later created a high profile hedgefund manager who operated accounts for many high profile foundations, and investors.

The Madoff Exception essentially allowed market makers to sell large quantities of stock without actually owning a stock.

The justification for the regulation is that it assures liquity in a stock. (A very flimsy argument as scarcity is the only true value of any asset.)

I contend that the Madoff Exception (and other forms Naked Short Selling) are fundamentally at odds with the concept of property.

Ownership, after all, is a temporal phenemena. No-one owns any tradeable asset in perpetuity. We own the asset from a purchase to a sale. We gain or lose on a asset based on how the market fares during our term of ownership. The Madoff Exception gives an elite ruling class the ability to sell a fake asset during the duration of ownership. This fake transaction is a taking.

Defenders of short selling claim that they have a fundamental right to buy or sell any given equity at any given moment. This fake right is fundamentally opposed to property rights wherein only the property owner has rights of ownership. You don't own your house if someone else has the right to sell it!

In the financial tools revolution we saw hedgefunds and other insiders build enormous fortunes by taking huge short positions, then trading these short positions as if they were an asset. These tools eventually grew to the point that they wiped out the whole market.

I applaud Patrick Byrne of for their diligence in reporting on this issue. Simply because a market involves a exchange and people making trades does not mean the market is a free market. Bernie Madoff and other elitists who "regulate" these markets are more than happy to trade away our freedoms.

'nough said, the new deep capture piece is a good read.

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