Mick Weinstein The Week's Best Stock Blogs

And yet another wild week on Wall Street. Following Washington's unprecedented proposal on Sunday to prop up mortgage lending giants Fannie Mae and Freddie Mac, the S&P 500 fell an additional 2% through Tuesday's close, but has since bounced back sharply - up 3.75% over Wednesday's and Thursday's sessions.

Market bloggers weighed in on this week's proposal to save Fannie and Freddie (known as "government sponsored enterprises," or "GSEs"):

• Former Secretary of Labor Robert Reich has some harsh words for policymakers. He says that "socialized capitalism of the sort the Fed and the Treasury are now practicing, consisting of private gains and public losses, is untenable. On the other hand, giant Wall Street investments banks as well as Fannie Mae and Freddie Mac are too big to fail." How to reconcile the two? Reich has an intriguing proposal - that "[w]hen taxpayers insure a giant entity against loss, the entities must agree that for the duration of the bailout, their top executives can't be paid more than the President of the United States; and the government gets 5% of their current valuation as shares of stock (roughly representing the benefit to their shareholders of the federal insurance) -- so that if and when the entities become profitable again, taxpayers are compensated for the risk they've taken on."

• Harvard Professor Jeff Frankel: "They say there are no atheists in foxholes. Perhaps, then, there are also no libertarians in financial crises... The lesson for government officials is that wherever they choose to draw the bailout line... they should think through the system ahead of time."

• For Mike Stathis, a consultant in investment intelligence, allowing the GSEs to "carry out their mission... is what got them into this mess to begin with. Paulson delivered the subtle message that has been interpreted by most that he won't bail the GSEs out. But if the GSEs aren't able to raise sufficient capital, it's going to initiate a printing frenzy by Bernanke, with or without a conservatorship."

• Economist James Hamilton considers what role the GSEs played in actually causing America's current mortgage problems. Hamilton agrees with economist Paul Krugman "that the most egregious problems were not caused by anything Fannie or Freddie themselves did. But I disagree that their actions played no role in causing the underlying problem we face today."

• Hedge fund manager Bill Ackman, who has made a killing on his financial shorts over the past years, is now short Fannie and Freddie stock - and this week released an alternate proposal of how to save them. Market veteran David Merkel responds: "Even for a libertarian like me, I can justify a bailout like Ackman's, because it hurts those that tried to profit from the public/private oligopoly. But no, I can't justify what Paulson is trying to do, and maybe, just maybe, the market is sending him a message that half-measures won't work."

• Zubin Jelveh of Portfolio.com presents the case for simply cutting Fannie and Freddie loose. Jelveh wonders if "the social benefits from having Fannie and Freddie in their 'current form'" don't outweigh the costs.

When in Doubt, Blame the Shorts?

Amidst the meltdown in many financial stocks, the SEC decided to point a finger this week at two groups of market participants that it believes have contributed to the collapse: naked short sellers and 'rumormongers.' Finance bloggers met the statements with extreme skepticism, wondering why the regulators weren't getting tougher with the financial companies themselves for not disclosing problems earlier:

• The New York Times' Joe Nocera is a welcome addition to the financial blogosphere with his new Executive Suite blog. Nocera says SEC commissioner Cox's new on naked shorting "is about chasing bogeymen, not getting to the root of any real problem." "There's a technical term for this," Nocera quips, "It's called a joke."

• Greg Newton, author of the ‘Naked Shorts' blog, has the best roundup out there on the SEC's curious decision - and how it got "walked back" to exclude market makers, "to avoid constraining their provision of liquidity." Newton believes this "essentially castrates the initiative, while raising serious questions about how the agency maneuvered, or was maneuvered, into a dunce's corner."

• Felix Salmon believes it's a good sign "we're in panic mode" when the SEC begins trying to curtail this sort of (already illegal) short selling: "The most charitable view of this is that the move is political, designed to make it seem like the SEC is Doing Something in the face of all the chaos. But it doesn't look like that: it looks like the SEC is happily signing on to the belief that stocks wouldn't be falling if it weren't for short-sellers. In other words, the Powers That Be don't trust the market, and the SEC has gone from facilitating price discovery to making it harder."

• Investment banker Mark McQueen questioned the SEC's new effort to investigate rumors that it believes contributed to the fall of some financial firms: "For the life of me, I can't imagine how the SEC will be able to prove that an individual knowingly spread a false rumor, unless an email trail is discovered...You can imagine plenty of conversations and emails like that over the past week or two... it'll be tough for the SEC to find the smoking gun - if there is one - in this particular investigation."

• Barry Ritholtz is stunned that "while Rome burns" the powers that be "flail about blindly, blaming everything and everyone -- except their own horrific negligence... This is financial incompetence writ on a scale far grander than anything seen for centuries. There is a choice to be made: Either we regulate the Banks, or leave it to the vagaries of the free markets to punish those who trade with, or place their assets in the wrong institutions. But for God's sake, do not give us the worst of both worlds -- do not allow banks the freedom to make horrific but preventable mistakes (i.e., only lending money to those who can pay it back), but then expect the taxpayers to foot the trillion dollar bill. That's not capitalism, it's not socialism, it's not regulation, and it's sure as hell isn't what free markets are...From beyond the grave, Adam Smith does not know whether to weep or retch."

• Matt Koppenheffer at MSN Money's Top Stocks blog: "If you're into conspiracy theories -- and you really don't have to stretch too far for this one -- it's because this time it's the gentleman's club on Wall Street that's being threatened. That's why the [naked short selling] crackdown is being focused specifically on the shares of certain financial firms -- I'm looking at you Goldman."

• Mike Steinhardt says he also can't stand manipulative market rumors, but he thinks they're just an unavoidable part of this business: "If you must have a policeman for every rumor that finds its way around the stock exchange or trading pits, our markets will not function. Hopefully, the SEC's new threats about punishing rumors will make things better, but I doubt it. And no, that was not a rumor!"

• Todd Sullivan agrees that the SEC will never be able to stop rumors, and that the market should be left to absorb them on its own: "Rumors have and will be around forever. If you have a strong business, they may affect the share price temporarily, but not impair it. If your business is already weak, they may hurt it. "

Was Tuesday the Bottom for Financials?

• Financial planner Greg Feirman made a great call at the end of the day on Tuesday, while the all-important banking sector simply collapsed. Feirman saw "the kind of fear and capitulation that exhausts selling and tilts the balance of supply and demand towards the buyers... Most of the sellers are gone now and there are a lot of potential buyers. That's a recipe for higher prices." Feirman bought the leveraged (double long) Financials ETF (UYG) that day - and it's up 32% since.

• Volatility expert Bill Luby also made a timely acknowledgment of the remarkable volume spike on the Financials ETF (XLF) Tuesday - more than three standard deviations above the mean: "This is capitulation-level volume in the sector that is most important to the stock market at the moment." XLF is up 17.5% over the past two days - but down 30% year to date.

• For Kevin Cook, who calls himself "a sucker for capitulation-type panic selling that usually marks bottoms," this week's action indicates that "we will drift higher, with occasional bursts of renewed optimism." Yet "this market has got to be tired. And financial companies aren't done revealing to us the excesses of the housing and mortgage bubbles."

• Portfolio.com's Salmon is equally skeptical of the sustainability of this rally in financials: "That kind of volatility bespeaks short covering to me, which means that the growlings from the SEC might be partly responsible for this latest uptick. The problem is that short-covering rallies, by definition, have no conviction and often don't last long... anybody looking at this mini-rally and seeing cause for optimism is, I fear, being decidedly premature."

• Was Tuesday the bottom? James Picerno asks "should we even care?" and offers some words of wisdom: "[T]ry not to get caught up in the tick-by-tick mentality of trading." His four-point plan for smart investing: (1) diversify broadly, (2) minimize trading, (3) keep expenses low, and (4) "Stay focused on the long run. Alternatively, if you don't have a long-run horizon, act accordingly with risk allocations."