Cramer: SEC Played a Big Role

Christopher Cox and his crowd of academics and theoreticians did more to destroy the confidence of this market with their adherence to free-market destruction of stocks than any of the managements of the companies themselves.

I know that is a strong statement, but you have to understand that the rules against naked shorting and shorting without upticks were about having firebreaks in the system. Consider these rules a swath of chopped-down trees meant to slow a fire so firefighters have a real chance to put out a monster conflagration.

Let's take AIG(AIG Quote). Here's a company that has lots of liabilities but also lots of assets. While its liabilities are liquid -- meaning it has to pay them off quickly if there is an event that triggers payment -- its assets, such as its great life insurance and aircraft leasing businesses, are illiquid. AIG couldn't just turn around and sell them.

Still, new management came in at AIG and decided to work on a plan, meant to be revealed at the end of September, that would detail asset disposals that could make the company a more solid credit with an ability to make good on their policies on financial instruments. It would also be able to access capital in the markets once those illiquid assets were disposed of.

Unfortunately, what AIG didn't know, and the SEC didn't either, is that AIG the stock is different -- and worse -- than AIG the company. The stock could not be insulated with a firebreak from short-sellers who knew that if you broke the stock's back, you broke the company's back.