Shorts, Be Prepared to Defend in Court

Notice how no shorts rose to the occasion today? Nobody put anything out to speak of? Perhaps it is the spreads on the puts. Perhaps it's the short-selling exposure, not just to the market but to the record-keeping.

Or perhaps it is justice, or more likely Justice, as I believe the hedge funds fear what's about to happen in this country. And you can't blame them. We are already seeing something big happening against the fallen firms; the FBI's making the calls.

When the FBI gets involved, the matter is not civil, it's criminal, and that's the Justice Department, not the SEC. That, of course, means SHOW TRIALS!

You can see it coming. There will be big trials of the people who ran AIG (AIG - commentary - Cramer's Take) and Lehman for allegedly not being honest about the financials. Same with Fannie Mae (FNM - commentary - Cramer's Take) and Freddie Mac (FRE - commentary - Cramer's Take).

But the show trials that will rock Wall Street are the ones coming against the short-sellers. I foresee show trials of people who "got it right." Just like we had to have show trials of those behind Enron and Worldcom and those behind the IPO boom, we for certain are going to see trials of the people who profited from this crisis.

It will be wrong. It will be horrible. It will be a nightmare for people who did homework and figured out the worthlessness of a Lehman or an AIG.

But I know the government. The pressure to bring prosecutions against those who made money will be too great.

That's what I believe is initially behind the SEC rule to disclose your shorts. If they force you to disclose your short positions, they can then look back to see what you have done right. They will then ask for email correspondence, get the tapes of your comments to the trading desks and they will depose fired employees to try to nail you.

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