From: "Perry E. Metzger" <perry@piermont.com>
Date: Thu, 6 Jun 1996 15:56:09 +0800
To: Hallam-Baker <hallam@ai.mit.edu>
Subject: Re: whitehouse web incident, viva la web revolution
In-Reply-To: <31B5C131.167E@ai.mit.edu>
Message-ID: <199606051821.OAA12450@jekyll.piermont.com>
MIME-Version: 1.0
Content-Type: text/plain



Phill, quit while you are ahead. It is my opinion, as a person highly
familiar with the markets in question, that Hillary Clinton's profits
were impossible to achieve by any means other than fraud, and that no
honest broker would have allowed her to hold positions in which she
was so far out of mandatory margin requirements and a trivial move
would have wiped out her entire net worth and more.  I do not know of
a single professional in the industry who disagrees with me.

I know of at least one extremely well written study, by Victor
Neiderhoffer (a very successful futures trader) and Caroline Baum (a
reporter for Telerate) that more or less demonstrates that there is no
way that any of what happened could have been legitimate.

The most astounding part of the trading pattern was that Hillary
Clinton did not "let it ride" and earn the money off of repeated
increases in the value of a single investment -- instead, she took all
profits out of her account after each trade and never invested more
than a tiny sum in any transaction. That is to say, she didn't earn
modest profits repeatedly over many trades -- she earned nearly
impossible profits in trade after trade. In spite of withdrawing her
profits after each trade, she racked up an impossible profit of 100
times her initial investment in a tiny period of time. At no time did
she meet margin requirments, and she repeatedly risked more than the
Clinton's entire net worth on what would have been gambles had her
profits not been guaranteed. In spite of her astounding "performance"
she immediately stopped trading after $100,000 in profits had been
accumulated.

There is an obvious trick by which this can be achieved. The broker
writes two tickets -- one to buy, one to sell. One ticket always loses
exactly what the other gains. The winning ticket is assigned to the
bribee, the loser to the person doing the bribing. The mechanism
self-launders the funds.

Hallam-Baker writes:
> Point of fact: the skeleton closet does not know how traded options
> work.

Mr. Baker, she traded FUTURES.

> If one sells a traded option one is liable to pay the broker if the
> market moves the opposite way to that hoped for. Normally the broker
> asks a client to put up a deposit or "margin" to ensure that the
> broker can recoup the money.

Margin requirements are set by the exchanges and the CFTC, not by the
broker in most cases. They are required by law -- not under broker
discretion.

> In this case the broker knew that Hilary
> had good credit and so accepted only a token deposit as "margin".

He's not allowed to. Furthermore, no sane broker would have allowed a
customer to hold a position in which a small move would have more than
wiped out the customer's entire net worth.

> In most cases it is profitable to sell options,

Futures, Mr. Baker.

> it is only if the market moves in the "wrong" direction that one can
> lose out. In such cases the losses are unlimited - the potential
> profit being fixed. This is why most punters buy options - the
> potential loss is limited.

Hillary Clinton was trading FUTURES.

Perry