In the UK, a number of hedge funds are about to sue the Financial Services Authority claiming that it did not have the proper authority to curb short-selling, which cost the funds million of pounds. The FSA is a first cousin of the SEC and performs a similar role.

According to The Telegraph, "Lawyers are being galvanised on behalf of a raft of hedge funds which claim the financial watchdog has illegitimately extended its powers and caused 'wide-spread capital destruction.'"

Whether or not their argument has legal merit, it does have a certain amount of fairness on its side.

Naked shorting, a practice in which investors bet a stock will go down without properly borrowing shares to cover the trade, has always been illegal. The act of shorting itself has for decades been a legitimate enterprise. It acts as a check-and-balance system so that stocks do not rise relentlessly without those who believe they should fail having a stake in the matter.

The SEC has not only done financial harm to a number of hedge funds, it also has taken all of the teeth out of a process that has given trading in stocks an economic and market legitimacy.

If hedge funds sue, they are in the right and ought to prevail.

Douglas A. McIntyre is an editor at 247wallst.com.

When word started circulating that hedge fund manager and renowned short-seller William Ackman was set to make public a new short position, a friend and I discussed it with some anticipation. We both hoped that it would be something new and exciting -- ideally a non-financial stock and, at the very least, something other than a bond insurer. Ackman has made headlines with his prescient calls -- and publicity-generating antics -- warning of trouble at Ambac (NYSE: ABK) and MBIA (NYSE: MBI).

Well the name of the company is out and it is indeed another bond insurer. And making it even less interesting, it isn't even a short. He's betting against Financial Security Assurance which, since it's owned by French bank Dexia, can't be shorted. Instead he is buying credit default swaps on the company's bonds.

A Fortune piece discussing Ackman's claims somewhat snidely points out that his long picks aren't doing well lately. Sears Holdings (NYSE: SHLD) and Target (NYSE: TGT) have been weak performers this year. But I think analyzing a stock's performance over a few months completely misses the point -- Ackman does higher quality research than just about anyone else on Wall Street, and it can take the market years to catch up with him. In the case of Amback and MBIA, an analysis of stock charts would made Ackman look like a buffoon for years after he started raising red flags. If Ackman's research is sound -- historically, it generally has been -- patient investors should do quite well following him into Target and Sears. Impatient investors probably won't do well no matter what.

Today's Financial Times reports that mortgage lenders in England were warned by the UK's Financial Services Authority (FSA) on Tuesday to brace for "very difficult" market conditions next year as at least 1.4 million homeowners face a sharp jump in loan repayments.

The FT cites three reasons why concern is growing regarding the stability of some smaller UK mortgage lenders: the collapse of Northern Rock (LSE: NRK), the slowdown in the housing market and rising lending rates between banks.

The same article quotes the FSA as prognosticating that there is "a very real prospect that conditions will worsen further into next year, in terms of both liquidity and credit risks."