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.