1. Naked Stupidity From the SEC

Don't even think of getting naked on Wall Street these days. And by no means should you get naked anywhere near Fannie or Freddie.

The consequences will surely be dire now that

SEC

Chairman Chris Cox issued an executive order banning naked short-selling of

Fannie Mae

(FNM)

or

Freddie Mac

(FRE)

shares. Naked short-selling involves selling shares short without having borrowed some first.

Tuesday, Cox announced to the world that the

SEC was taking emergency

action to prohibit the naked short-selling of shares of the two gigantic mortgage firms.

"In addition to this emergency order, we will undertake a rule making to address the same issues across the entire market," Cox said to Congress.

Under the new terms, short-sellers will have to "pre-borrow" shares before they can engage in any selling activity.

That'll surely fix the mess the mortgage lending giants find themselves in. The idea of the move is to stop speculative interests putting too much selling pressure on the stock price, which could then in turn start a rout.

Never mind that naked short selling has been illegal all along.

Never mind that the SEC could have busted naked short-sellers at any time. An executive order will surely show the scoundrels that Cox is serious.

So why is Cox bothering?

The answer is that showboating before Congress is a lot easier than what he should really be doing, which is catching crooks.

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Dumb-o-meter score: 95. With Cox around, better don a bikini.

2. More Foolishness With Freddie and Fannie

Fannie Mae and Freddie Mac watchers must be suffering from a serious case of whiplash after Treasury Secretary Henry Paulson's sudden reversal of his anti-bailout rhetoric at the end of last week.

Going into the weekend, Paulson

led everyone to believe

there'd be no government bailout of the two giant mortgage securitization companies. Then on Sunday, he basically did the opposite.

Paulson shouldn't have been so quick to try to snub Fannie and Freddie, considering that his boss inflicted some of the pain on the two so-called government-sponsored enterprises.

As part of George W. Bush's economic stimulus package (remember the pathetically small stimulus checks?) the government ordered Fannie and Freddie to effectively double the size of loans they could purchase from banks. So the two companies started taking on loans over $700,000 compared with the previous limit of $417,000.

The move was designed to help prop up the increasingly shaky housing market. What a surprise that the problems at Fannie and Freddie got worse.

How could they not, when the changes to the loan limits effectively stuffed them full of exposure to one of the most beleaguered sectors of the housing market?

It's hard to believe anyone would think the government could walk away from the mess. Yet Paulson's comments last Friday caused an intra-day swing of almost 400 points in the

Dow Jones Industrial Average

.

After dropping the bombshell on Friday, the net damage to the Dow was 128 points, followed by another 46 on Monday following Paulson's Sunday reversal, when he said: "The plan includes a temporary increase in the line of credit the GSEs have with Treasury."

Or more simply, a "non-bailout" helping-hand of a problem partly caused by the government.

Maybe Paulson should have followed the advice of Denis Thatcher, the late and well-respected husband of former British Prime Minister Margaret Thatcher.

"Better keep your mouth shut and be thought a fool than open it and remove all doubt," he once said.

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Dumb-o-meter score: 91. It's time to tape someone's mouth closed

.

3. IndyMac: Let the Blame-Storming Begin

Now that Federal regulators have finally seized beleaguered mortgage bank

IndyMac

, what better activity to start than the blame-storming?

And where dumber to try sticking the blame than on the senior senator from New York, Charles Schumer.

Friday, after the market close, the

Office of Thrift Supervision

placed IndyMac in the hands of the Federal Deposit Insurance Corp. after the regulator decided that the bank was unlikely to have sufficient funds to meet depositor demands.

At least part of the problem was the outflow from the bank of $1.3 billion of deposits starting in late June. That's a huge amount, accounting for almost 7% of the bank's total deposits of around $19 billion.

And that's where the dumbness really starts, because John Reich, director of the OTS, says the rush to withdraw funds was all sparked by a June 26 letter from Schumer to the OTS warning of pending liquidity problems.

"Although this institution was already in distress, I am troubled by

any interference

in the regulatory process," Reich said Friday in a press statement referring to the Schumer letter.

In other words, Reich is saying Schumer caused a bank run.

Surely that gives Schumer

way

too much credibility.

Seriously, would you take his word for it that a bank was set to go under? Even Schumer was a bit incredulous, telling the

AP

his letter offered "no new revelations." He likened the administration's response to "blaming the fire on the person who called 9-1-1."

An alternative interpretation of events, and one that seems to ring truer, might be that depositors finally got wise to the fact that IndyMac's loans weren't worth the paper they were written on. Or at least they weren't willing to run the risk of finding out.

IndyMac specialized in making so-called Alt-A loans, typically granted with little documentation of income or assets or to those with credit blemishes -- in other words, loans to people who wouldn't normally qualify for prime loans.

It doesn't take a genius to figure out that anything less than prime has a tendency to age badly these days.

So why are the banking regulators giving Schumer so much credit?

Maybe they're trying to create a distraction to keep people from asking who let things get out of control in the first place.

If the regulators had done their jobs, then maybe the FDIC wouldn't be staring a possible $8 billion bill to cover mess, possibly making the most expensive U.S. bank failure ever.

Someone needs to be blamed, right senator?

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Dumb-o-meter score: 90. Message to senators: Please don't spark anymore bank runs!

4. Show Me Your Assets

What's the first thing you have to do in the Show-Me state?

You guessed it: Show me.

That's exactly what

Wachovia's

(WB) - Get Report

Wachovia Securities had to learn the hard way on Thursday.

That day, a team of 10 state regulators raided the St. Louis office all in search of information related to auction-rate securities,

The Wall Street Journal

reported

.

Auction-rate securities allow long-term borrowing by student loan companies, mutual funds, local government entities and financial services firms. The kicker is that the interest charged is based on short-term rates.

These securities were once considered a safe way to produce high yields for investors, but demand for such paper -- and thus its value -- has imploded as the credit markets crunched. As a result, lately Wachovia's been having trouble returning cash to clients.

Befuddled Missourians filed more than 70 formal complaints with the state regulator. The claims represented more than $40 million in unreturned assets.

Missouri had been asking Wachovia Securities

nicely

to reveal its records since April.

No dice!

So after the bank failed to fully comply, Missouri dispensed with the niceties and raided the headquarters.

"Hundreds of Missouri investors have called my office because of inability to access their money," said Carnahan in a statement. "They were told these investments were safe and easy to cash in, but now they cannot run their business, make medical payments, or pay school tuition."

What was Wachovia thinking, dilly-dallying bashfully in a state that prizes simple proof enough to earn the nickname the Show Me State.

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Dumb-o-meter score: 85. Don't be shy about flaunting your assets -- Missourians want to see it to believe it.

5. Korean Judges Gone Wild

If you've ever considered stiffing the tax man but were deterred by the fear of a stint in the clink, then South Korea could be the place for you.

It's especially appealing if your family controls a major conglomerate. Just ask Lee Kun-Hee. The former head of South Korea's

Samsung

was

convicted by a South Korean court

of tax evasion for trying to hide $4.5 billion, yet he somehow got off without any jail time.

"His crime is not serious enough to sentence him to prison," the judge is reported as saying.

How $4.5 billion isn't "serious enough" is beyond belief, but hey, it's working for Lee.

The defense used the argument that his secret accounts were intended to maintain family control of the business and stave off unwelcome buyers seeking to wrest it away from him. Clearly that defense didn't work to avoid a conviction, but it did seem to do very well in getting him off without hard time.

His main punishment is to pay a $110 million fine and approximately the same again in unpaid taxes.

Contrast that with the case of Richard Hatch, winner of the first series of the

CBS

(CBS) - Get Report

reality-TV show

Survivor

. He must be kicking himself for not moving to Korea before his 2006 tax evasion trial.

Hatch was tried in Providence, R.I., and was sentenced to roughly four years behind bars after being convicted for evading taxes on approximately $1.3 million of income largely stemming from awards for winning the TV elimination competition.

To put that in perspective -- Lee Kun-Hee sheltered 3,500 times more income without earning a prison punishment.

Maybe "Girls Gone Wild" creator, Joe Francis, should think about moving to Korea before his pending tax evasion trial.

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Dumb-o-meter score: 75 Time for a trip to Seoul.

TheStreet.com Staff Reporter Mike Taylor contributed to this article.