It’s all confidence, it’s not reality” is how UBS analyst Glenn Schorr describes the decimation to Morgan Stanley's equity price.

Exhibit 1: Morgan Stanley volatility now more than x4 its historical level

But is it any surprise that 'frothy' volatility has increased on the back of investment bank dissembling and sector upheavel? Curiously, the longer-term short interest chart reveals a more calculated price discovery picture that perhaps puts the public utterances and 'leaks' from John Mack into some sort of perspective:

Exhibit 2: Morgan Stanley short interest chart since October 2004

Hardly a new development this belief that the investment bank's equity is overvalued. But the recent frenzy is surely driven most by the proofs of Lehman/Barclays and Merrill/BoA that partners and/or buyers are not going to pay any kind of premium to anyone no matter how well capitalised they (appear) to be. With funding issues coming to a head - and the Fed picking and choosing carefully - what would you rationally do to MS (or GS for that matter) equity in such circumstances?

Neither is it clear that SEC politically-inspired rules against short sellers are going to win the argument. Not so easy to separate 'evil speculation' from price discovery.

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