There seems to be a belief that putting one troubled financial company together with another troubled company immediately removes the fact that either or both are troubled.

They may get a reprieve and the next individual company may get most of the negative attention for the timebeing, but I don’t see where a marriage of two ugly people makes them look pretty.

Merrill may think it escaped attention and it may have in the short term, but nothing about their proposed deal with BAC changes the risks they still have.  And if they make it to the closing, the merged entity is not immune to selling in my opinion.  The same statement can go for any other shotgun wedding arranged by our central government matchmaker.

It’s easy to blame short sellers.  The last time I checked shorts did not build the balance sheets of these companies full of excessive leverage and inflated asset prices while selling toxic financial innovation and collecting huge fees for products that have no value other than manipulating financial statements.  All those smart management teams did that all on their own.  Well, they got a lot of help from the government who provided cheap interest rates and failed to do their job to regulate this mess.

Regardless, it does appear that the government will once again shift the blame entirely on the shorts and speculators so they can ignore dealing with the real issues.  Shorts better pay attention or they will get spanked by the focus on them. The Public Relations and media spin of this story is classic.  Just suggest that all the problem is due to the shorting and then, if the government comes out strong to help the bulls, VOILA! it might appear that the situation is resolved.  That deception might work for a while, but the real culprit will return.

As you may know, I am fully supportive of reinstating the Uptick Rule and enforcing the naked short selling regulation they have chosen to ignore for years.  I cannot stand CDS so if you want to get rid of it to prevent someone from selling the equity and simultaneously buying a CDS, please make that happen.  As for this new concept being tossed around about requiring daily reports of short positions, bring it on as long as you are willing to force the longs to show their positions every day as well.  I’d love to have the daily data to see who is selling out of a long position in quantity.  I am sure many long only investors want to blame everything on the shorts, naked or legal, and there will be a growing push to ban shorting altogether.  I will never support getting rid of all short selling.  Longs are selling these stocks in quantity - you may not want to blame them, but they are selling and the shorts are not forcing them to do so.

If the issue is supposedly all about shorts and all about the low stock price, then don’t you wonder why none of these guys were willing to screw over all these excessive shorts and buy AIG or LEH for $2 per share.  I am sure the government would have loved to help anyone punish the shorts and create another one of their massive squeeze plays.  But it did not happen.  AIG was in trouble.  LEH was in in trouble.  If someone else had bought them compliments of a low stock price, they would have been in trouble too regardless of how much the shorts would have gotten caught short.