It’s taken me quite a long time to understand how certain Wall Street practices are entirely misunderstood by politicians, smart investors, and most retail traders. It is, without question, the great secret that countless trading desks have made gobs of money on – the act of creating new shares for companies through short sales, loans, IOUs, modification of cleared trades, and other bizarre tactics that are somehow legal. The act of transforming tangible stocks into endless paper through these actions has essentially made any individual stock’s supply endless. And with endless supply of a security, eventually comes its downfall. I call this the “paperization” of markets and it’s why crypto will eventually take down the NYSE and Nasdaq as well.
The paperization of markets is primarily caused by back office operations that most traders will never see or know about. What I mean is, when you buy or sell a stock, do you actually know the certificate number of that stock? Do you actually know if it’s ever been delivered to you or the counter party? The answer is no. Actually, it’s quite possible you bought the same stock that 10 other traders bought and someone will “get to it later” in one of the clearing houses.
That stock you bought isn’t in your account, it’s somewhere in the back office being recorded on a spreadsheet or ledger that can be modified by anyone who has direct access to it. For instance, the shares you bought last week may quite literally be recorded on an excel spreadsheet somewhere in an clearing house, where tons of people have direct access to such spreadsheet. As long as a publicly traded company is not vigilant in tracking its shares, buying them back, and routinely watching their outstanding supply, they are at the risk of getting paperized to a thousand pieces.
The excessive generation of paper transactions all recorded on spreadsheets or text notes run by people just like you and I and not a repeatable system creates too much room for error, shenanigans, and other processes that will stay in the dark until it’s too late. Without a bid by the S&P 500 or a smart buyback, these tactics can eventually amplify stock supply well beyond its intended scope. More importantly, there is no ledger of information that all people can see or access after trades are cleared. It exists somewhere, in a back office, by a middle party you’ll never meet. This situation is seldom rectified or audited, leading to a persistent oversupply or error in data. There is a reason why “failures to deliver” exist and it’s because it simply a mess of a system that a few trading desks know how to take advantage of.
In contrast, cryptocurrency markets offer a more transparent and accurate tracking system. Blockchain technology eliminates the need for intermediaries who might inflate paper supply, ensuring a precise and decentralized record of asset ownership and transfer. It is also open, can be verified, and is validated by the minute. This technological infrastructure promises a more secure, efficient market system that could, theoretically, reshape traditional market frameworks. It suggests a future where market integrity is restored, operational costs are reduced, and the practices of over-issuance that have benefitted few at the expense of many are eradicated.
That’s why I wrote this post.
Modern equity markets need to move fast or crypto will take them down.
It is more fair, open, and reliable than the current system. It’s also about time a new piece of technology put an end to all the grift and theft that occurred over the last 10-15 years in terms of “paperizing” various companies into oblivion.