Cramer shares some experience doing things that he thought were legal but nasty:

Short selling rules…were put in because it was too easy for the shorts to destroy the common stocks and, therefore, the companies in finance. It was too easy to stop capital from flowing into the markets and destroy their functions. The government held hearings and recognized that the shorts had sown fear and that it was not in the national interest to sow fear, collude to bring down stocks and wreck the capital markets…Has anything really changed in terms of what the goal was? Has anything changed in human nature?…

It is also no excuse that “throughout the world’ the same thing is happening to bank stocks. Remember my argument: I am not saying that all the banks should be preserved and I am not saying that there aren’t banks that shouldn’t be seized. I am saying that it is irrational and empirically obvious that not all banks are insolvent but they trade as such because it is so easy to sew the panic and fear that the legislators in the 1930s saw happening…

Joe Kennedy was the first Securities and Exchange Commission chairman. He favored the rules because he was one of the big short-selling winners and he knew how effective short selling was in undoing the stock market and the banks. In short, he wasn’t a rube as so many of the short sellers/purists imply when I take up this cause…

Let me leave you with a realistic thought about this subject. In 1990, Morgan Stanley’s options desk showed me a way to get around the uptick rule. I could buy puts and common stock simultaneously and then bang down the common stock so quickly as to scare the buyers and create a vacuum down where I would then sell the put.

It was one greatest ways to make money on the short side I had ever seen. I could go in and buy thousands of puts — position limit — and a like amount of common and just, guns blazing, blow weaker stocks apart. I remember destroying Woolworth and Dayton Hudson, laying them to waste. Others got into the game too. It was totally legal.

Then one day they told me to cool it. The regulators didn’t like it, too easy, too destructive to the capital markets, too unfair. I argued mightily that the longs could do it, that my rights were violated…And the whole time I knew the truth. It was just such easy pickins. The buyers figured why would some seller be that aggressive if something wasn’t wrong. The buyers lived in fear that “the whale,” as I was known at the time, would wipe out their stocks so they sold right along with me. I minted money.

Married puts were as right and as fair as fair could be. Except that they weren’t at all and when a bunch of us would come flying in at the same time we could really take stocks down fast, much faster than they could go up. Remember, this was before you could put a credit default swap on to win both ways.

There is no conspiracy that is taking most of the financial stocks towards zero, which is what is happening now because of the Obama administration’s incompetence and sheer folly in unlearning the lessons of AIG and Lehman Brothers in the near-nationalization of Citibank. We told you what destruction would follow, and it has. What Cramer demonstrates is that there doesn’t need to be any conspiracy among traders, just enough clever fellows to spread rumors, make short runs on stocks and CDS’s, and do a few other things so that fear becomes panic among mainstream investors.

Meanwhile, Obama is in Ohio touting how his $787 billion “stimulus” saved 25 government jobs. We’re running out of new ways to say “clueless”.

This entry was posted on Friday, March 6th, 2009 at 4:30 pm and is filed under business, Democrats, General, idiots!, MSM. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.