Apparently the SEC is investigating such rumors but they never have appeared so upfront in placing blame when investigating the dubious conduct of investment banks or rating agencies that helped get us into this mess.

More likely than mere rumors is that some investors realized what a house of cards our entire banking industry was being built on and decided it was time to get out or short the sector. If BSC was destroyed by false rumors than its shareholders should be compensated. I guess they should be compensated by JP Morgan as they are the beneficiary of picking up the bargain. But why then is the government on the hook for the risk?

I don’t buy the notion that BSC was done in by false rumors, perhaps they were done in by a growing realization that there was little of value behind these subprime positions.

Jeffrey Skilling of Enron fame claimed that Enron was solid company that was a victim of a classic run. He is the same person who cursed at a shareholder for having the audacity to question the firm’s numbers. In today’s corporate and political world investors’ job is to provide capital and not ask questions. Apparently it is okay for them to contribute to an unsustainable bubble but if they try and profit from its inevitable implosion, they are the problem.

I would contend that if there was true value there, someone would have figured it out and not let the stock drop to nothing.

The SEC’s emergency action is extremely disturbing because it places blame on rumor mongers but doesn’t address the issue that a bubble was allowed to be created by a lack of oversight. No such emergency action was issued in the 1990s when dozens of dot coms traded at unbelievable multiples without ever making a dime of real profit.

Did they consider an emergency order in the1990s when dozens of brokers and analysts talked about a new paradigm where price/earnings ratios and other antiquated fundamentals no longer mattered because the Dow was going to 35,000? Where was the government when questionable mortgage practices and interest only and adjustable rate mortgages where the rage despite there being all time record low interest rates?

It doesn’t take a genius to figure out that a fixed rate mortgage was the smart play at the time that these questionable mortgages were prevailing. If the government really cared about reform they would have taken action then. This action looks to be motivated by a desire to protect the investment banks that are only getting their due.

Former New York Governor Eliot Spitzer in an op ed piece in the Washington Post on Feb. 14 complained how efforts by all 50 state Attorney Generals to regulate and prosecute predatory lending practices were thwarted by the Administration.

Spitzer wrote: "In 2003, during the height of the predatory lending crisis, the OCC invoked a clause from the 1863 National Bank Act to issue formal opinions preempting all state predatory lending laws, thereby rendering them inoperative. The OCC also promulgated new rules that prevented states from enforcing any of their own consumer protection laws against national banks. The federal government's actions were so egregious and so unprecedented that all 50 state attorneys general, and all 50 state banking superintendents, actively fought the new rules."

So apparently there was some effort by the states to control the problem before it turned into an epidemic but the Feds sided with the banks and these toxic loans were split up and repackaged into fancy sounding securities called SIVs and CDOs and the rest is history, including the career of Governor Spitzer that ended in scandal less than a month after writing the letter.