As much as Cramer holds the Securities and Exchange Commission in contempt, his vitriol and spite for the federal regulator and its chairman grew even stronger this week after the disappearance – in one form or another – of Lehman Brothers and Merrill Lynch and the impending collapse of AIG. Why? Because unchecked short sellers destroyed these companies, and it was the SEC’s job to keep these bear raiders in check.
You might remember that SEC Chairman Christopher Cox is the guy who got rid of the naked short selling and uptick rules, which prevented a trader from shorting without first borrowing the stock or waiting for it to tick up in price before shorting, respectively. Once the rules were gone, bear raiders were able to drive down Lehman, AIG, all the financials, with virtual impunity. Now Lehman’s gone, and AIG’s trading at $3.75.
There’s no questions these companies had/have legitimate problems of their own. The insurance AIG sold on the solvency of Lehman and the debt that investment bank was expected to pay off warrant a drop in AIG’s share price. But nothing like what we’ve seen. AIG dropped to its present level from $20 in only a week.
“In my opinion, that’s not the invisible hand of the market reflecting the true value of AIG’s shares,” Cramer said. “It was the very visible hands of short sellers pushing the stock down and smothering the company.”
If Cox had done his job and left in place the short selling rules, which were specifically designed to prevent these bear raids, Cramer thinks AIG’s stock would be much higher. And that low share price has prevented the company from selling stock to raise much-needed capital and have the chance to sell its assets, which are actually quite valuable.
What Cox doesn’t understand, while virtually everyone else on Wall Street does, is that to kill a stock is to kill the company behind it. And that’s what the shorts did to AIG.
The SEC caused another problem, too, by not requiring more transparency at these struggling companies. So there was no way for investors to know what good and bad was lurking on the balance sheets on Lehman, AIG and others. That allowed the bears to spread fear-inducing rumors, which made driving down the stocks much easier.
And what’s strange about all of this is that at one point this past summer the SEC reinstated these short-selling rules. And that’s when the financials bottomed. So if they were working then, when we needed them most, why not keep enforcing them? They were created in the first place – after the crash of 1929 – to stop the very problems short sellers caused to AIG.
“When we look back at the destruction of the financials during this great era,” Cramer said, “never forget the instrumental role the SEC played in both creating the chaos and doing nothing to stop it.”
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