The question is what will the Feds do?  Will they support Morgan Stanley the company?  Or will they support MS shareholders.  Apparently, the United States government thinks there is no distinction there.  But that is not reality.

If anything has been learned from Bear Stearns, Lehman, Merrill Lynch, Washington Mutual, IndyMac, AIG, Fannie Mae and Freddie Mac, it's that stock prices are inextricably bound to a company's credit rating.  Especially in the case of banks, there is nothing worse than a sudden crisis of confidence.

And here is the problem: short sellers profit off of a crisis in confidence.  Today, the only 'investors' that are making any money are short sellers.  And hedge funds fighting to survive in this market are fishing for weakness.  The latest catch of the day is Morgan Stanley.  Their independent existence may already be a foregone conclusion.  The question is who's next and what will happen to the market.  And more importantly, when will federal regulators finally understand the root of the problem.

There's a small glimmer of hope however: U.S. stock exchanges - private companies which are losing credibility with all of this - are themselves considering ways of limiting short-selling in an effort to root out market manipulation.  The recommendation with the most traction calls for a five-day ban on short-selling in any stock that finishes a session down at least 20 percent from the previous day's closing price, according to The Washington Post.

Now lets just pray our friends at the Securities and Exchange commissions, who are probably lining up their future jobs at naked short selling hedge funds, do not block this and other ideas regulating short selling.  If that's the case, this American tragedy has only just begun.