The CEO and chairman of overstock.com, one of the largest online retailers, Patrick Byrne, gave the presentation on how economic warfare is used as an instrument of transnational organized crime.
organized crime often move the market to their favor often exploit the conflicts of economy or the loopholes found in the system. There’re many aspects of economy that can be penetrated by these corporations through various means, among which are short selling, settlement and securities.
For settlements, in what is known as naked short selling, for example, the failure to deliver (FTD) will cause the variables in a supply/demand paradigm to shift.
When the supply and demand do not meet, the price is no longer efficient, thus causing the market to be more volatile. Naked short sellers, brokers or hedge fund managers will sell stocks that they don’t own to investors by borrowing these shares and buying them back later at a lower price. While short selling is good for providing liquidity to the markets, naked short selling is often vilified because it’s an act deemed ruthless that can only cause the destruction of other companies.
This in turn, will set in motions the wheels of a “bust-out”.
A “bust-out” is a scheme build on confidence where a person or a corporation takes over an established business by purchasing large stocks of goods on credit and after having quickly sold them, often at a much lower price, the relationship is severed and the established business is now abandoned and its owner declared bankrupt. This plundering process can be summarized in the diagram below:
This scheme is an infamous hat trick used by many organized crimes especially the mafias. On a grander economic scale, it’s not this blatant and elementary. Other possibility is of stock market manipulation.
Many corporations of various levels are involved where the very fall of an established and/or significant corporation can and will contribute to the liquidity of the market. When this happens, the beta area of an Efficient Market Hypothesis paradigm (EMH) will shift and become more concentrated since with more liquidity in the market, the less volatile it will be. This will cause the prices to be more accurate, in favor for the schemers of bust-outs, as they have anticipated this particular shift in the market.
This maneuver is concocted to manipulate the market where it will now costs more for the owners of the depleting company to save it from bankruptcy than it was for the schemers to initially to buy it.
Other than that, other forms of bust-out are also present on the subprime level. Components such as mortgage fraud, where the money made through this scheme can be used for various illegal means and also the synthetic collateralized debt obligations (CDO) where investments are made into credit default swaps (CDS) or any other non-cash assets.
These are some of the economic warfare used by organized crimes from America as well as other countries like Russia as instrument to conduct their transnational crimes.
In 2011, President Obama has signed an executive order declaring a state of national emergency against the businesses of transnational organized crime. This state of emergency is declared because the situation has reached a level where it is now threatening the stability of international politics and the world’s economic system.