Naked-shorting poster child/terrible company Novastar Financial (NYSE: NFI) has finally lost three of its top executives as it continues to flounder on the brink of bankruptcy.

Not so long ago (and by not so long ago, I mean 90%+ of the company's value), Novastar shareholders were blaming the company's sagging share price on naked short sellers.

Of course that turned out to be baloney, as the company was poorly-run enough to collapse on its own lack of merit -- no conspiracy theories needed!

What's fascinating is that it took so long for the chairman/CEO and CFO who presided over such destruction of value to resign to spend more time with their families.

If only Novastar shareholders had devoted more time to monitoring the company and holding management accountable instead of going off on loony conspiracy theories, this might have ended better.

When a stock declines from a reverse split-adjusted $250 per share down to $3.41 before heads roll, corporate governance and accountability are a serious problem.

TheStreet.com's Jim Cramer explains why "purchased HELOC" is the next phrase to fear.

Purchased HELOC.

Get that term into your head. Home equity loans that were purchased from other originators are the scourge of the system. Any piece of paper backed by these second liens that were issued by pure mortgage originators is just a goner.

This is the paper that was generated by Fremont General (NYSE: FMT) (Cramer's Take) and NovaStar (NYSE: NFI) (Cramer's Take) and New Century Financial and American Home Mortgage and so many of the other bankrupt and walking-dead companies. It was mostly no-documentation loans paper and served as another way to tap money that was meant to be paid back when you flipped a home. It was predicated on the continued increase in value of your home.

As Peter Cohan discussed earlier, shares of Lululemon Athletica (NASDAQ: LULU) awere down more than 8% [earlier] today. A New York Times article mentioned that the seaweed content of Lululemon products, which are labeled as being made of 24% seaweed, is actually 0%.

According to newspaper, "The Times commissioned its test after an investor who is shorting Lululemon's stock - betting that its price will fall - provided Chemir's test results to The Times."

Short sellers get a lot of grief, but this story provides evidence of why I respect their research so much. Sell-side analysts operate on a research method based on trust; they generally parrot the claims made by management, and have well-deserved reputations for downgrading stocks after they lose most of their value.

It's amazing that it took Novastar Financial (NYSE: NFI) this long to announce it, but now it's official: The company scrapped its plans to pay a dividend on its 2006 "profits", and will therefore have to forfeit its status as a real estate investment trust.

The company expects the new tax status to have a "significant adverse effect" on its third quarter results.

This is a great time to give a shout out to BloggingStocks' own Peter Cohan, who had one of the best short calls I've seen in a long time. In a brilliant post on December 18th of 2006, he wrote that "Potential loss of short-term liquidity could make it tough for NovaStar to repay these debts." He suggested that investors short the stock, and the stock is down more than 92% year to date. Great call Peter!

At the time, many were complaining that the company was a "victim" of naked short selling. Obviously, short sellers were the least of Novastar's concerns, as the company is currently fighting for its life.

In the classic comedy Rush Hour 2, Chris Tucker explains his method of detection to Jackie Chan:

James Carter (Chris Tucker): Lee, let me introduce you to Carter's new theory of criminal investigation: follow the rich white man.
Lee (Jackie Chan): Follow the rich white man?
James Carter: Behind every big crime there's a rich white man waiting for his cut.

And sure enough, according to MarketWatch, most hedge funds made out like bandits in February, as they had correctly forecast the subprime lending crisis that led to the collapse of companies like Novastar Financial.

In the mind-boggling world of credit derivatives (Incidentally, go pick up a copy of Traders, Guns, and Money), even the experts can't quite seem to figure out who was bearing the risk that allowed the funds to succeed. Some suggest pensions funds and overseas investors, but no one really knows.

When I logged onto Amazon.com to check out the new releases in business books, this headline jumped off the page: Real Estate Sale: Save up to 39%.

The headline was followed by this: Whether you're a real estate professional or a first-time home buyer, find all the guides you'll need for becoming a landlord, finding a mortgage, selling properties, and investing in one of the most time-tested and popular strategies for building wealth, all at up to 39% off for a limited time.

Among the deals:

• Flipping Properties: Generate Instant Cash Profits in Real Estate, which is 33% off.
• How to Be a Quick-Turn Real Estate Millionaire, which is 35% off.
• Investing in Duplexes, Triplexes, and Quads, which is 35% off.
• Why We Want You to Be Rich, which is 37% off (this book would be a ripoff at 99% off, in my opinion).

Granted, most books are on sale at Amazon (NASDAQ:AMZN). That's why I love it. But it does seem a bit unusual that they're advertising especially deep discounts on real estate books. One possible conclusion: people aren't buying them. If we go with the theory that the bull market in real estate was in fact a speculative bubble, this makes sense.

With the recent collapse in the shares of NovaStar, a subprime mortgage lender, many investors learned an invaluable lesson: If you decide to buy a stock with a high short interest ratio, you do so at your own risk. I have always felt that short-sellers, on average, do far better research than longs. Short-sellers are famous for digging deep into financial statements (It was a Boston short-seller who originally uncovered red flags at Enron.), and performing down and dirty due diligence. Many long investors simply take corporate executives at their word, and rely on analyst research.

Herb Greenberg, a famous permabear who has uncovered accounting shenanigans at many companies over the years, was one of the first to raise questions about Novastar. Some investors however, seemed to relish the idea of waging a war with short-sellers. Newsletter writer Alan Newman directly poked fun at the shorts in December of 2004, saying "Given that the shorts have totally misplayed their hand and botched their analysis, the outcome could be disastrous for them." The stock was then at $50. It closed Friday at $8.48.

Greenberg's column also discussed the arrogant message board posts of short-bashing Novastar shareholders, one of the most outspoken of which was a former CAT scan machine salesman. The lesson for investors here is this: Always focus on the fundamentals of the business. Never invest in a stock because of a high short interest ratio (Some studies have shown that heavily-shorted stocks are more likely to under-perform the broader market) and, when in doubt, remember this: The shorts do very good research. If you're going to bet against them, you better have a good reason.