The Five Dumbest Things on Wall Street: Feb. 15

1. Kill The Messenger

With its stock down 80% over the last year, MBIA (MBI Quote) came to Washington, D.C., this week to put the blame where it always seems to belong: on someone else.

This time, the creaking bond insurance giant pointed the finger at activist hedge fund manager Bill Ackman of Pershing Square Capital, who estimates that MBIA faces more than $11 billion in potential losses on insurance contracts that it underwrote for structured finance securities tied to risky mortgage loans.

Ackman publicized his bearish case on MBIA and disclosed his short position on the company way back in 2002, and was roundly ignored or ridiculed on Wall Street. He recently told reporters that when he presented his case to MBIA executives years ago, they threatened him, in an attempt to keep him from making his analysis public.

MBIA's complaints about Ackman led to an investigation into his fund's activity by then-New York Attorney General Elliott Spitzer in 2003. By Ackman's account, Spitzer found no evidence of any wrongdoing on his part. In fact, he took an interest in Ackman's analysis of the bond insurance industry and the fraudulent activities that he alleges MBIA and its counterpart, Ambac (ABK Quote), have engaged in. (Spitzer could not be reached to confirm this account, but he was also in Washington this week, calling for a government bailout for the bond insurers, aimed at preventing financial catastrophe).

Forgetting about the First Amendment and other nagging details, MBIA told lawmakers and regulators that the practice and dissemination of "half-truths and misleading information" by short-sellers should be "investigated and curtailed."

But now everyone is listening to Ackman because he has far more credibility than the bond insurers. As MBIA noted in its testimony, the hedge fund manager appeared at the congressional hearing this week as an "industry expert."

"Mr. Ackman is in fact not involved in the industry in any capacity except as that of a short-seller, and, accordingly, MBIA questions the characterization of Mr. Ackman's expertise," said the bond insurer.

Dumb-o-meter score: 95. It's a sad commentary when someone not involved in an industry has more expertise on it than those leading its largest company.