# Quantitative Short Squeezing

As with the gladiator games in Ancient Rome, the stock market always has a winner and a loser. Having announced that a particular corporation was "too big to fail," the emperor essentially gave the "thumbs-up" to the fallen Bank of America and chose to make a winner out of a loser. At the emperor's behest, the gladiator who was defeated was given new life to destroy the one who would have defeated him. Looking at the current state of affairs, where winners and losers in the stock market may be decided by the whim of government, it's not difficult to draw parallels to the games of Rome.

Investors who identified and valued the derivative mess correctly bet on banks becoming insolvent. Smart investors shorted banks and waited for them to fail. Others jumped from the sinking ship. But in a moment of haloed exultation, our emperor inadvertently chose to do some wealth redistribution into one man's account.

Is this what we have become? The government is a wild card in the stock market?

David Tepper, hedge fund manager of Appaloosa Management, personally profited \$4 billion and raked in over \$7 billion for his hedge fund in 2009. Tepper bet on a three-legged horse at the derby and won only because the government swooped down in Air Force One and dragged the lame horse across the finish line. When Tepper took away \$7 billion, he took \$7 billion from small investors who correctly bet on the failing real estate market.

Watch Tepper give an interview on CNBC Squawk Box September 24, 2010. The panel asks him what he saw in 2009, and he answers:

It was easy. The government told you what they were going to do. Basically the government put out a white paper...um, I can't remember the exact date...in March [2009]...A treasury paper... You can't put out a white paper that says you're going to buy securities, and then not buy them...So they told me they were going to buy Bank Of America (BAC) at \$6. They told me where they were going to buy other stocks. Nobody believed them, we actually did.

The Government Accountability Office (GAO) lists all of the reports from that period from both the Treasury and the Office of Financial Stability (OFS). None of the reports contain any mention of a formal put option at \$6 per share for \$45 billion in common or preferred stock of BAC with TARP funds. Additionally, on the Treasury's website, no statement or report contains wording of this type during that era. White papers and news releases are listed here on the Treasury's website, and no such white paper exists.

On March 4, 2009, BAC was trading near \$6 a share, and on March 6, 2009, BAC reached a low of \$3.14 and traded 281,000 shares. On the following day (March 9, 2009), the stock stayed low at \$3.75 and traded almost 300,000 shares. A day later, the stock was nearing \$5 and then rose to almost \$20 in the coming months. David Tepper claims to have front-loaded during those two days in March when the stock traded below \$4 because of a "put option" white paper listing the government's intention to buy shares at \$6.

However, this report on January, 30, 2009, on page 32, explains how the \$45 billion was already distributed, long before the period when Tepper claims to have bought.

On January 16, 2009, Treasury announced that Bank of America would receive \$20 billion under TIP (Treasury Investment Program). Under CPP (Capital Purchase Program), Bank of America had previously received \$15 billion on October 28, 2008, and \$10 billion on January 9, 2009. Similar to the terms for the Citigroup transaction under TIP, Bank of America will make dividend payments of 8 percent to Treasury and will comply with enhanced executive compensation restrictions. We plan to discuss the final terms of these agreements more fully in our next report.

The very next report was on February 24, 2009, and then there was another on March 11, 2009, but still there is no declaration by the Treasury to buy shares of BAC at \$6 as Tepper claims. Even now, this elusive white paper cannot be found. But even if a white paper was written, what common investor saw it before a hedge fund manager with a team of Bud Fox wannabes could make their moves? Why wasn't this released through regular news channels? Tepper says it was a white paper which nobody but he apparently saw.

Is this the type of "change" the little guy voted for when he voted for Obama, or more business as usual?

Market corruption has never been more evident. The poor became much poorer, and through hidden channels, the rich became much richer. The entire country's economic system nearly failed, and billionaires doubled their billions by merely placing what Tepper says were sure bets given to him by the Obama administration, with apparently hidden artificial scaffolds defying logic that was impossible for any common investor to see.

Gladiators in ancient Rome were sworn to an oath: "He vows to endure to be burned, to be bound, to be beaten, and to be killed by the sword." For Caligula, it mattered not who the winner was, only that the emperor was served well and his desires were satiated.