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Tag Archives: Easter Bunny

In Other Election News… it looks like Overstock won’t be relocating to South Dakota after all.  I’m not sure if that’s good news or bad for Utahans.

A big part, probably the biggest, of what turned the 2008 election in the US was basically the same thing that gave the US its previous Democrat president in 1992; in the words of that campaign, “It’s the Economy, Stupid”.

And two of the biggest factor in that were the ballooning of oil and fuel prices (which seems to have passed almost as inexplicably as it occurred; I had the pleasure of filling up for $1.99 a gallon on Election Day), and what they call the “mortgage meltdown”, and the turmoil that’s wrought in the financial sector.

And that brings us to an obscure player in the mortgage boom and bust of the 2000’s, a little Kansas City company called NovaStar Financial.  It first came into the spotlight, as Mitchell states, in April 2004, though Mitchell seems totally baffled as to exactly why.  In fact, the trigger seems to have been issues involving NovaStar obtaining proper licensing in several states, which led to an informal SEC inquiry.  Despite what you may have heard about the mortgage industry being an unregulated free-for-all back then, in fact these regulatory issues had significant consequences for NovaStar, in that their insurer, PMI, was refusing to pay claims on defaulted mortgages that didn’t have all the regulatory hoops jumped through cleanly.

This led to a lawsuit against PMI later in 2004 which was settled in 2005, but apparently NovaStar was by no means unique when it came to mortgage lenders that cut corner, but merely in the one that came out and publicly blamed their problems on outside forces.

In a way, it was the first sign of trouble ahead for the subprime mortgage industry, an augur of things that would prove world-shaping before they were done.

Or, you can ignore all that as Mitchell does and lay it out this way: Rocker was shorting NovaStar in 2003 and their lapdog Herb Greenberg got his lapdogs in the SEC to stir up trouble for NovaStar and take down their stock.

Mitchell has a strong tendency to avoid making concrete statements of fact throughout Deep Capture, but apparently it wasn’t completely out of excessive carefulness, because now he lays down the whopper that “NovaStar continued to report strong profits well into 2007”.  Unless you take that to mean “for nearly two months into 2007, NovaStar was considered by most to be strongly profitable”, that’s quite simply not true, as many on Wall Street were shocked by an unexpected loss in NovaStar’s 4th quarter results for 2006.  This in fact was the beginning of what would prove a very swift end for NovaStar, as in short order the giant dividend which had attracted investors was no more, and in August 2007 they abruptly stopped accepting new business and divested existing business elsewhere.

Of course, Mitchell once again ignores all that, deciding shares of stock not being delivered was far more important than mortgage payments not being delivered.  He does concede, in one of his rare moments of understatement, that subprime mortgages had become “risky business” at the time Deep Capture was published, and does offhandedly refer to NovaStar’s final demise by way of whining about Herb Greenberg gloating over it.

And in all of this we haven’t even touched on the “nfi-info” website (which no longer exists; the link is to the Wayback Machine archive of it) that was run by none other than the Easter Bunny himself, and had been dedicated to the greatness that was NovaStar and the travesty that it was finding itself under attack.  And of course all those stock delivery failures, which, despite what Mitchell might want you to believe, had absolutely nothing to do the collapse of the company.

Next week, another victim steps forward.  At least this one isn’t totally dead yet, though it’s made some very adverse headlines of late.


So, anything happen while I was away?  Not to worry, Overstock fans, the loyal shareholder base will have this bid back up quickly, what with none of those pesky non-borrowing shorts to get in the way…

Now we come to a rather disjointed section whose slender common thread seems to be to introduce us to the generically named Market Reform Movement.  It starts, oddly enough, with a description of Patrick Byrne nominal day job, CEO of Overstock.Com, which Mitchell rather left-handedly describes as “at least for a while” looking like a potentially serious competitor to Amazon.  As in, not anymore of course.  Of course that didn’t stop Byrne from asserting that Overstock deserved to be valued as richly as Amazon, despite small issues like Amazon having long ago gotten over its chronic money-losing tendencies and Overstock, not so much.

The Market Reform Movement is described as a product of an era where “you don’t have to be entirely normal to make a positive difference in the world”.  Although what happens when your definition of a “positive difference” is part of what’s abnormal about you, is a question not addressed.  (The answer, sadly, is all-too-frequently such miscarriages as the so-called “9/11 Truth” movement — but that’s a subject for another blog, or should I say many other blogs.)

The section then swerves into an aside about the identity of the “Easter Bunny”, who also refers to himself as “Bob O’Brien” (to the great annoyance, no doubt, of the CNBC commentator of the same name), and the need to protect it.  The whole thing seems a bit much, given that Patrick Byrne has not been martyred in any of the many ways he has predicted over the years, nor has anything foul befallen Phil Saunders, the individual most commonly named as the man behind the long ears, who Mitchell partway names himself but then stops short in an “aren’t I just bursting with integrity by not repeating the full story” way.  And then, he just dismisses the whole matter with a “whatever” as if he wasn’t the one who went off on that tangent in the first place.

And then, something funny happens: Mitchell declares Byrne’s whole movement “mainstream”.  (Please note that this was written well before SEC Chairman Cox unaccountably gave it his rub.)  Members of Congress (who, as we know, never jump on a bandwagon they don’t fully understand), “brave” individuals inside the SEC, the US Chamber of Commerce (whose reputation is not the least bit sullied by the number of its prominent members found to be engaged in stock fraud), famous trial lawyers (see Congress), respected economists (as if there exists a market theory not embraced by a gaggle of them), and “recovering stockbrokers” (poor Mark — how was he to know that stockbrokers were about to be portrayed as victims in this whole scheme?) are listed as the membership that establishes it as mainstream.  Missing from that list is any segment of the media, but of course that just makes them all part of the conspiracy.

All of the above come together on a single conclusion: hundreds of companies have been victimized by this grand conspiracy, yet not one can be named that was even a marginally healthy and fraud-free business before the short-sellers invaded and took it down.

And that is where this most-awkward-thus-far of sections leaves it.

Next week: Mitchell gets naked.

And now even a podcast?  I don’t want to say they’re oversaturating their market, but sheez, how’s a guy supposed to even keep up?  In other news: Woof.

“And it all starts when Patrick Byrne gets a phone call from the Easter Bunny.”

I ask you, with an opening like that, how could Mitchell’s former colleagues at Columbia deny him the Pulitzer?

The date, strangely never mentioned in Mitchell’s piece, was January 28, 2005, and the occasion was the fourth-quarter conference call for Overstock.Com’s 2004 fiscal year.  For that year, according to the SEC filings that would not be made for another seven weeks, Overstock lost $5 million, though it claimed positive cash flow from operations of $24 million.  The results were generally categorized as strong, and while the lack of true profit was disappointing, most institutions were still willing to give the Utah online retailer some slack.  Of course, the company also had its share of critics, as all public companies do.

But nobody, at least nobody not in on it, was expecting what was to follow.

Mitchell, at least for now, writes very credulously about what occurred.  CEO Byrne receives a call from an anonymous person calling himself the “Easter Bunny” and, unaccountably, does not immediately hang up.  To be sure, Mitchell’s account has Byrne sounding very skeptical.  “But the Easter Bunny persists”, Mitchell writes, even though the only thing allowing him to persist was the goodwill of the person taking the call.

Our leporid friend goes on to make some as-yet unrevealed predictions, so let me respond in kind with a couple of predictions of my own, namely that Mitchell will prove to know full well that this incident was not, in fact, where the story begins, nor was it the spontaneous event that he currently portrays it to be.

Of course, I’m cheating a little with those predictions, using a dastardly technique called “reading ahead”.  On the other hand, who would begin a trek into the jungle without at least some kind of idea where the destination lay?

But as bizarre as this incident may have been, it was nothing next to what would follow later that year.