After WaMu, sellers slam Wachovia, FirstFed and Downey

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After the failure of Washington Mutual on Thursday, Wall Street today is back to bashing the usual suspects as the next potential casualties: Wachovia Corp., National City Corp., FirstFed Financial Corp. and Downey Financial Corp.

But there’s no blaming short sellers for what’s happening to these stocks this time around. Remember, starting last Monday the Securities and Exchange Commission outlawed short selling in more than 800 financial issues, including all four of the above.

Wachovia shares were down $4.67, or 34%, to $9.03 at about 11:15 a.m. PDT -- below the previous multiyear low of $9.08 the stock reached on July 15, amid the worst of the mid-summer selling in financial issues.

So if the short sellers can’t pound these stocks, the selling today must be by investors who were expecting the shares to rise -- and now have changed their minds, big time.

Rationally, if you expect Congress to pass the Bush administration’s $700-billion bailout plan for the financial system, you might also expect that the banks most burdened with bad mortgages -- including Wachovia, National City, FirstFed and Downey -- would stand to be potential beneficiaries of the program.

‘But this is a very emotional market, and when people are emotional they aren’t rational,’ said Todd Clark, director of trading at Nollenberger Capital Partners in San Francisco.

There’s also a common thread here with Wachovia, FirstFed and Downey: All three have huge, troubled portfolios of pay-option adjustable-rate mortgages, which allow borrowers to pay so little that their loan balances can rise. Option ARMs also were a favorite loan at WaMu.

FirstFed was down $5.34, or 29%, to $12.91 at about 11:15; Downey was down $1.48, or 38%, to $2.42.

National City was off $1.48, or 30%, to $3.51.