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China's stock manipulation made a hornet's nest

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Stocks were keying off Greece and China at the open, but that faded going into the close, and with good reason: they are hardly the basis for a notable rally.

Why? To put it bluntly, neither of those countries inspire confidence among the trading community.

Let's focus on China. The Shanghai market rallied 5.7 percent overnight, the biggest one-day move in six years.

But much of that rally is an illusion. It's hard to get your head around the mind-boggling "initiatives" of the Chinese authorities in the last week. Consider just the restrictions on trading that have been put in place:

  1. Trading suspensions. Only about half of the stocks listed on the Shenzhen and Shanghai exchanges are trading, since companies have been allowed to simply suspend trading in their shares, with no end in sight;
  2. Restrictions on futures trading to curb short selling;
  3. Large shareholders are banned from selling their shares for six months.

Read MoreChina's trading rules making matters worse

Then there are efforts to simply BUY the markets:

  1. The government announced it would step up buying of small and medium companies;
  2. Chinese brokerages have pledged to purchase up to $120 billion yuan of Chinese stocks, supposedly on a voluntary basis.

What's most disturbing about all this is it reflects a belief that the government can manage asset prices, when it's clear to everyone that they were the cause of the bubble to begin with, principally by allowing massive amounts of margin lending to unsophisticated investors.

It seemed like a good idea on paper: getting small investors to buy into the stock market would recapitalize cash-strapped industries, solving a major problem. But they created a whole new problem: the private savings of millions of citizens are in danger of being wiped out, and with it confidence in the government.

Read More Here's what's really surprising about the NYSE halt

I also get why traders are worried about the knock-on effects of this manipulation: China is the U.S.' second-largest trading partner after Canada, so any decline in stocks and the economy there creates anxiety about the impact on global growth.

What's the fallout from all this intervention? Well, the idea that the Chinese government has provided some kind of "put" in the market has certainly gone by the wayside. You can also bet that MSCI will likely not move to include mainland China shares in their global indices this year. Longer-term, it's even possible that all this manipulation has hurt their bid to make the renimbi one of the world's reserve currencies.

  • Bob Pisani

    A CNBC reporter since 1990, Bob Pisani covers Wall Street from the floor of the New York Stock Exchange.

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