Hedge funds are starting up another rumor now that Morgan Stanley (MS) and two other firms were being "short squeezed" with their investment into Volkswagen.

Goldman Sachs, one of the named, declined to comment, but people inside the company said it had no Volkswagen losses. Morgan Stanley spokesman Mark Lake said frankly that company has no exposure to the automaker. SocGen, the third victim of the rumor, could not immediately be reached, but earlier Tuesday said it was sticking with its third-quarter earnings forecast.

Speculation that banks were caught in a "short squeeze" involving Volkswagen fanned worries about the industry's ability to weather a credit crisis that has led to the demise of several large financial companies and has prompted government interventions worldwide to avert a financial system collapse.

However, at this point, governments have likely still failed to understand a primary source of this worldwide collapse: short term minded hedge fund managers who are trying - and often succeeding - in taking down companies for profit.  They do it through analysts.  They do it through journalists.  They do it by abusing the system of short selling in America.

Meanwhile, Morgan Stanley stock has collapsed once again and there is no doubt in this writer's mind that there is a widespread effort to profit off of another "failure."

Unfortunately, it's less a failure of Morgan Stanley and others, and more a failure of the Securities and Exchange Commission, the exchanges and a media that still doesn't understand the problem.