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Lehman has taken to indicting the shorts publicly, but Lehman isn’t the government, and while the SEC last week said it would examine whether hedge funds are engaged in manipulation, the commission said the same thing several months ago after Bear’s demise and then did nothing. The SEC did make a point of saying it would go after money managers who have been short-selling without first borrowing any stock, but I doubt that will curb this sort of manipulation.

As someone who made fortunes selling short, I can see a handful of solutions to this problem. First, firms that give full disclosure, brim with cash, and meet or exceed projections make for awful shorts. You simply can’t bring down an honest, well-capitalized firm; it will buy every share from you and take it right back up again in your face. Second, an SEC that subpoenas and listens to the tapes—everything hedge funds say to brokers is recorded—rather than just make empty threats would quickly instill fear on the part of those doing the raiding. That seems to be too interventionist for this SEC, but it would stop these raids almost immediately, as no hedge-fund manager wants to cross the commission and risk being shut down. Finally, an education campaign by the targeted companies themselves could explain to pension funds what hedge-fund managers are doing with their money. It isn’t clear that the pension-fund managers themselves know the havoc they are sowing with these hedge-fund doles. The custodians of workers’ pensions may not like the idea that they are instrumental in workers’ losing their jobs.

If times were good in the country, if balance sheets of financials were flush with cash, if mortgages weren’t defaulting at nascar speeds, believe me, these shorts would be getting their heads handed to them. In that sense, the only solution is a Darwinian one: When this miserable period ends, the firms that survive will be shortproof, and the returns will come to those who bet with, not against, companies.

James J. Cramer is co-founder of TheStreet.com. He often buys and sells securities that are the subject of his columns and articles, both before and after they are published, and the positions he takes may change at any time. At the time of this writing, he owned Goldman Sachs stock in his charitable trust. E-mail: jjcletters@thestreet.com. To discuss or read previous columns, go to James J. Cramer’s page at nymag.com/cramer. Get all of James J. Cramer’s stock picks via e-mail, before he makes the trades, by subscribing to Action Alert Plus. A two-week trial subscription is available at thestreet.com/aaplus.


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