Patrick Byrne tells Rutgers audience he was 'ridiculed' for predicting financial system’s collapse mid-decade
Patrick Michael Byrne, chief executive officer of Overstock.com, offered a rousing denunciation of Wall Street insider trading, the laxity of federal regulators, and the collusion of leading financial journalists in leading to last year’s economic meltdown, during a presentation last night in Alexander Library sponsored by the Department of Philosophy in New Brunswick.
A cancer survivor, former boxer, anti-corruption crusader, university educator, and self-described “classical liberal,” Byrne detailed how he began predicting in mid-decade how the American financial system was a “house of cards” destined to collapse, only to be ridiculed at the time by much of the financial press and investor community. His predictions have now won him grudging admiration from former critics and a particular moment of fame on the John Stewart Show -- an episode in which Stewart grilled CNBC’s Jim Cramer using video highlights provided by Byrne.
Byrne focused much of his presentation on Wall Street market manipulation by hedge fund managers and brokers engaged in “naked short selling” of phantom stocks. The practice involves hedge funds that exploit regulatory loopholes by selling vast amounts of “phantom” stock they have yet to borrow or purchase, thereby flooding the market and driving down prices. Byrne noted that the practice led to the collapse of a South Carolina manufacturer which was producing mine-resistant armored vehicles for the military in Iraq.
Through his business blog www.deepcapture.com and the Market Reform Movement which he founded, Byrne continues to press for tighter regulatory reform of Wall Street.
Byrne took the helm of Overstock.com, an internet retailer based in Salt Lake City that specializes in offering brand-name merchandise at discounted prices, in 1999, leading the firm’s annual revenue growth from $1.8 million to $834.4 million in 2008. To capitalize the firm’s growth, Byrne opted for a “Dutch Auction” process which he said immunized Overstock from Wall Street’s excesses. Google, he said, similarly resorted to a Dutch Auction to raise capital.
In what he called, “the best idea of my life,” Byrne in 2001 launched Worldstock.com, a store within Overstock.com to market handcrafted products made by artisans from developing nations and rural areas of the U.S. Worldstock has since returned more than $30 million in sales revenue to its artisan suppliers. He explained that he came upon the idea during a tour of Southeast Asia where he became impressed by the work of local artisans and concluded that the business model he employed for Overstock.com could be utilized to mass market their wares.
Worldstock.com essentially runs at cost, Byrne said, while returning a higher rate of earnings to the artisans.
A strong advocate for education and a healthy capital market, Byrne co-chairs with Rose Friedman the Milton & Rose Friedman Foundation for Educational Choice. Byrne has founded 19 schools internationally that educate more than 6,000 students.
Holding a black belt in tae kwon do, Byrne once pursued a career in boxing, training in gyms in Paterson, Elizabeth, and Brooklyn. After surviving cancer, he cycled across the country four times, most recently in 2000, when he helped raise awareness and funding for cancer research at the Dana Farber Cancer Institute.
Byrne earned a doctorate in philosophy from Stanford University, a master’s in philosophy from Cambridge University as a Marshall Scholar, and his bachelor’s degree in philosophy and Asian studies from Dartmouth College. Although he never attended Rutgers, Byrne said he still recalls singing “On the Banks of the Raritan” during long family trips as a child.