The Five Dumbest Things on Wall Street This Week

2 . WaMu Wipeout

Washington Mutual (WM - Cramer's Take - Stockpickr) slashed its dividend a whopping 73% on Monday. The draconian move confirmed months of speculation and followed criticism that the savings and loan was whistling past the burning of the subprime mortgage market.

By doing the smart (and inevitable) thing, WaMu effectively owned up to its prior dumbness:

On July 18, citing "the quarter's solid performance and the company's strong financial position," WaMu raised its dividend for the 48th consecutive quarter to 56 cents per share. "I'm pleased with the job our employees are doing in growing the franchise, delivering best-in-class customer service, as evidenced by our recent J.D. Power award recognition, and focusing on improving our operating efficiency," Chairman and CEO Kerry Killinger said at the time.

The streak of dividend raises ended on Oct. 17, when the company reported third-quarter results about which Killinger admitted being "disappointed." But the dividend was maintained, a move that drew catcalls from observers such as David Peltier, author of TheStreet.com's Dividend Stock Advisor. When everyone was focused in early November on whether Citigroup would be forced to cut its dividend (see above), Peltier presciently observed that Washington Mutual's payout was at much greater risk in an interview on TheStreet.com TV.

WaMu's dividend cut was part of a "series of actions designed to address the unprecedented challenges in the mortgage and credit markets," according to a statement by the firm. The series also included plans for a $2.5 billion (ultimately raised to $3 billion) convertible preferred stock offering and a "substantial resizing" of its home loan business.

"A substantial infusion of new capital, significant expense reductions, the major change in our home loans business, and our planned dividend reduction all combine to further fortify WaMu's strong capital and liquidity position," Killinger said in a statement Monday. "These actions will also better position us to pursue various initiatives, particularly in our leading retail banking business -- which is at the core of our business strategy."

Notably absent in the statement was any mention of the company's responsibilities to its shareholders, whose holdings have tumbled about 60% in the past 12 months. Perhaps the long-suffering WaMu holders were omitted because the terms of the convert -- 7.75% with a conversion into common at $21.25 - "just makes anyone who owned this common feel like a total moron," as Jim Cramer so eloquently put it Wednesday on RealMoney, a subscription site from TheStreet.com

Dumb-o-Meter Score: 93. Banc of America Securities' Robert Lacoursiere downgraded WaMu to sell from neutral Thursday and lowered his price target to $13 from $24 (down from $42 back in April), writing: "In the wake of recent management disclosures, our pessimism on the credit has grown and our confidence in the company undermined." Really? You think? That's some value-added analysis there.

3. Candy Flipping

Parents teach their kids not to take candy from strangers. Children today also are bombarded with the message to stay off drugs, and it's great news that teenage drug use is down, according to a report this week from the University of Michigan Institute for Social Research.

But what happens when the drugs look like candy?

That's the ill-tasting conundrum facing the good folks at Hershey(HSY - Cramer's Take - Stockpickr), whose Ice Breakers Liquid Ice mints bear an uncomfortable resemblance to heat-sealed plastic bags often used to transport small quantities of cocaine or heroin. The mints, which are sold in blue and orange plastic slide-top cases, first hit store shelves in November and are the latest incarnation of a "fun loving brand that loves to push the envelope and deliver 'WHOA' moments to gum and mint users," according to Hershey's Web site.

Whoa, indeed.

The Philadelphia Daily News reports that Hershey is planning to change the packaging amid pressure from consumer advocates and law enforcement officials. Philadelphia Police Chief Inspector William Blackburn said the candy in question -- a treat that could get you brought in for questioning -- "glorifies the drug trade," as The Associated Press reported. "There's really no reason that a product like this should be on the shelf."

There's been no official word yet on a package change from the famed American candy conglomerate and no comment from former Ice Breakers' spokes-sisters Hilary and Haylie Duff, the squeaky clean performers popular with the "tween" set.

But "it was certainly never our intention to create any confusion with this product," a Hershey spokesman is quoted (verbatim) in a number of news reports. "We take consumer and community feedback very seriously and are acting quickly to address concerns."

The Ice Breaker affair caps a rough end to a tough year for Hershey, whose shares have fallen about 20% in the past 12 months. In October, the company posted dismal third-quarter earnings and lowered its fourth-quarter forecast after being hit by a by a triple whammy of charges, lower sales and rising costs. Chairman and CEO Richard Lenny stepped down earlier this month amid rumors that he clashed with the trust that controls the company.

It's enough to make a shareholder reach for some really hard candy.

Dumb-O-Meter score: 85. Hopefully no one will ever confuse Hershey's beloved kisses (now available in seven "everyday" flavors!) with the kind of "candy kiss" that are given out at raves. (Or so we've heard.)

4. Fannie Slap

United we stand, divided we fall, and if our backs should ever be against the wall, we'll ...just pass along higher fees to the average American.

Fannie Mae (FNM - Cramer's Take - Stockpickr) and Freddie Mac (FRE - Cramer's Take - Stockpickr) put a new spin on the government's "all for one and one for all" attempts to find a solution to the nation's housing mess.

The ink was barely dry on the plans from Treasury and the White House to help alleviate pressure on the mortgage market when the government-sponsored enterprises announced new surcharges for mortgage borrowers who are borrowing more than 70% of the home's value, i.e. folks who have a down payment less than 30%, which is the vast majority of borrowers.

Depending on the FICO credit score, the fees range from 0.75% to as high as 2% of the loan; the midpoint of those fees would add an additional $351 in fees on a $255,500 mortgage, the average price of a single-family home in America.

"This is no time for Fannie Mae's [and Freddie Mac's] business interests to take precedence over its mission responsibility," said the National Association of Home Builders, which called the new fees "a broad tax on homeownership."

But officials of the quasi public-private enterprises, created by an act of Congress to help facilitate mortgage lending and which have enjoyed reduced borrowing costs because of their presumed government guarantee, see it differently.

"The business that we're in is to providing a guarantee to lenders that those underlying loans will perform over time," Fannie Mae CEO Daniel Mudd told CNBC. "Right now in this market with all the uncertainty, and with the softness in home prices, the certainty with which you can guarantee that those loans can perform is more expensive. So where it makes sense and where fees we're getting don't compensate for the risk we're taking, we're moving fees up. The pricing reflects the risk we're taking in a market that's far from certain right now"

For Freddie's part, CEO Richard Syron told the network: "This is a tough time for a lot of people. It's been a very tough time with investors. We all have to share the pain."

Funny, we don't recall Fannie and Freddie sharing the bounty when the good times were rolling.

Dumb-O-Meter score: 82: "We're a publicly chartered company that has shareholders," Syron explained at the Goldman Sachs financial services conference this week. "So I don't have the right, nor would I want the right, nor do I intend to be in a situation where we say we won't do what's right for the shareholders in order to subsidize some other market. We're just not going to do it." (Take that, U.S. taxpayers and homeowners!)

5. Truckload of Stupidity

Toronto-based Biovail (BVF - Cramer's Take - Stockpickr) agreed to pay $138 million in cash to settle a class-action shareholder lawsuit alleging the pharmaceutical firm made a series of false and misleading statements in 2003 regarding the launch of Cardizem LA, a treatment for both hypertension and chronic angina.

The company admitted no wrongdoing, naturally, but agreed to cough up $138 million, or about one-third of its cash as of Sept. 30, in order to "eliminate the uncertainty and considerable expense associated with this matter and enable us to use, in much more productive ways, resources we otherwise would have devoted to this litigation," as Biovail Chief Executive Douglas Squires said in a statement.

Trouble is, Biovail has a history of finding unproductive things to do with its time and shareholders' money. This lawsuit is the latest in a string of dumb things done by the company.

In 2006, Biovail joined Overstock.com (OSTK - Cramer's Take - Stockpickr) in alleging that a group of short-sellers, sell-side analysts and journalists were conspiring to spread false and misleading information about the firms in an orchestrated effort to drag down the shares. Biovail's lawsuit specifically targeted former Banc of America Securities analyst David Maris for participating in the cabal. In September, Biovail dropped the lawsuit and paid BOA $2.1 billion to cover legal fees, according to The New York Post.

Back in 2003, the company infamously lowered earnings guidance, citing an accident involving a truckload of the antidepressant Wellbutrin XL. Not coincidentally, BoA's Maris was among those who claimed the company overstated the value of the cargo.

In November 2003, the SEC began investigating Biovail, in part because of the Wellburtrin controversy but also concerning accounting issues. The investigations by the Securities and Exchange Commission and Canadian regulators eventually focused on founder and former Chairman Eugene N. Melnyk, who retired last spring after being accused of breaking insider trading rules and failing to disclose Cayman Island-based trust accounts that at one point held nearly 20% of the company's shares, according to Bloomberg.

Given this track record of nonexcellence, perhaps Biovail's true strategy is to give its shareholders hypertension, and hope they'll drive up sales of Cardizem LA.

Dumb-O-Meter Score: 78. In the dumb-by-association department, Bivoail co-conspiracy theorists Overstock.com took a hit this week as well. Shares tumbled early in the week after CEO Patrick Byrne said the company's gross margins would be lower in the fourth quarter due to aggressive sales promotions and discounting. No word yet on how the short-selling cabal contributed to the gross margin hit.