Well, the current state of the global financial markets is certainly interesting. I mean, you have to be a bit sick in the head, but if you think about it the right way, it really is “interesting” — sort of like, oo-wee, look, the girl in the cute leotard is falling off the tightrope, there’s no net, and she’s going to go “splat” when she hits that pavement. How interesting! And check it out, the circus animals have gone berserk — the tigers are tearing the trainer into bloody shreds, the elephants are stampeding, the tent might very well collapse, maybe we’re doomed, and look at those clowns – they’re still smiling. How deliciously interesting!

Actually, I take it back — it is not in the least bit interesting. It is terrifying. Despite early attempts by the smiling clowns of the nation’s media and regulatory apparatus to portray the dramatic market collapse of May 6 as mere happenstance, it is now clear that this unprecedented event was no “fat finger” accident. It was not a “black swan” that appeared out of nowhere. And more than likely, it was not some anomalous but innocent trade that triggered a run-of-the-mill panic. What it was, exactly, nobody seems able to say – and that is what makes it all the more scary.

But we can venture some educated guesses, and my best guess is that this was an orchestrated attack on the stock market – an attack that shaved 1,000 points off the Dow Jones industrial average in a few minutes, and caused some stocks worth nearly $50 to drop to a penny in matter of seconds. I have been trying hard, but I simply cannot imagine any natural confluence of events that would cause this. I can, however, think of a number of criminal market manipulators who have caused similar, though less dramatic, events in the past. And I know that these manipulators would get a kick out of triggering a full-blown market cataclysm. They wouldn’t just get a thrill — they would also make a boatload of money.

At any rate, this much is clear: our financial system is seriously broken and the nation is vulnerable. If the May 6 “anomaly” was not an attack, there is every reason to believe that something worse can happen. It can happen because the Securities and Exchange Commission has done nothing to prevent it from happening. Despite overwhelming evidence that market manipulators contributed to the financial turmoil of 2008, not a single criminal has been apprehended. And not only does the SEC let the miscreants run loose, but it also stubbornly refuses to close gaping loopholes that enable market manipulation to occur.

To its immense peril, much of America seems disinclined to discuss market manipulation. I don’t know if it is indolence, incuriosity, or simple complacency, but the discourse in this country stands in stark contrast to the one taking place in Europe, where politicians and the mass media have declared unequivocally that the markets are under attack, with consequences that could be quite dire, to say the least.

According to BaFin, the German financial regulator, “massive” illegal short selling attacks have led to excessive price movements that “could endanger the stability of the entire financial system.” After beholding the drama in the American markets on May 6, and seeing its own market tumble precipitously, the German government finally took on the manipulators, banning naked short selling of stock in its largest financial institutions and restricting the trading of naked credit default swaps, which are often deployed in manipulative attacks.

Not all of the discourse in Europe has been helpful, however. German Chancellor Angela Merkel declared that “speculators are our enemies,” confusing law-abiding traders who passively speculate on price movements with criminal manipulators who actively seek to inflict harm on the markets. Chancellor Merkel only made things worse when she said that this is a “battle of the politicians against the markets” – a proclamation that reinforced the notion that Europe’s politicians harbor a disdain for the free market system. Our enemies are criminals, not market freedoms.

The European response has also been characterized by a certain degree of ineptitude. Germany had already banned naked short selling in 2008, and foolishly lifted the ban last January. Having given the market bullies the green light to attack, Germany’s politicians now appear like the playground dweebs, panicky and weak, hurling nothing more than small stones. It is presumed that the naked short selling and other manipulation will simply move to exchanges in London, where officialdom seems less inclined to fight. But Germany’s ban on naked short selling — though too little, too late — is perfectly sensible.

Which makes the American media coverage all the more inexplicable. News Corporation's (NYSE:NWS) Wall Street Journal, which has for many years seemed incapable of even uttering the words “market manipulation”, reported that the German ban on naked short selling “sparked uneasiness” and actually caused markets to fall further. Sparked uneasiness? Only criminals could possibly be “uneasy” about a policy designed to prevent a crime. Perhaps some “uneasy” criminals are members of the hedge fund lobby, whose talking points tend to find their way into stories published by The Wall Street Journal.

As for the notion that a ban on naked short selling would cause markets to lose value – well, we’ve heard something similar before. It was back in 2008, when the SEC issued an emergency order banning naked short selling of stock in 19 big financial companies, only to have the hedge fund lobby (and The Wall Street Journal) holler that preventing crime would “reduce liquidity” and put downward pressure on markets.

This, of course, is precisely the opposite of what happened. While the emergency order was in place, the stock market surged. Then, on August 12, 2008, the SEC, for reasons that cannot be fathomed, lifted its emergency ban, allowing the manipulation to resume. The stock market duly tanked, and continued to spiral downwards until September, when market manipulators wiped out a large swathe of the American financial system.

It is not just me saying this. Respected economists, famous hedge fund managers, former government officials, and current U.S. Senators such as Ted Kaufman of Delaware have all studied the events of 2008, and the consensus is that illegal naked short selling and other forms of short-side manipulation contributed to the demise of Bear Stearns, Lehman Brothers, Washington Mutual, and countless smaller companies. In the months leading up to September 2008, criminal naked short sellers flooded the market with more than $8 billion worth of phantom stock every day.

As further evidence that The Wall Street Journal just doesn’t get it, consider that the newspaper reported this week that “under naked short selling, investors can sell securities before they have borrowed them. The practice is already banned in the U.S…” This, unfortunately, is patently false. Although the SEC took some half-hearted steps to prevent naked short selling in the aftermath of the 2008 carnage, it did not ban naked short selling outright — traders are still permitted to sell shares before they have borrowed them.

The SEC’s current rules state only that traders have to deliver stock within three days, or in some cases, six days after they have sold it. This means that market manipulators can flood the market with phantom stock for three to six days, inflicting serious damage on prices. When it comes time to deliver the stock they have sold, the manipulators buy stock (at the newly damaged price) on the open market and hand it over. Then they do it all over again – flooding the market with phantom stock for another three to six days.

In nearly every case, such naked short selling is designed to manipulate prices, which is blatantly illegal. But the SEC turns a blind eye to the manipulation so long as the manipulators deliver stock before the three or six-day deadline. In fact, the SEC often turns a blind eye even when the manipulators don’t deliver the stock. Every day, more than 100 million shares go undelivered before the anointed deadline, and that is in just one part of the system monitored by the Depository Trust and Clearing Corporation. Far more phantom stock is processed ex-clearing, and in other shadowy regions of the financial system.

The SEC would do well to investigate these shadowy regions in its attempt to identify the roots of the “freak accident” that took place on May 6. But, alas, the officials of that agency have been too busy picking buggers out of their noses. Ok, not just buggers – they also wrote a 100-plus page report on their investigation into the “market events” of May 6, and this report is filled with all sorts of statistics and enough head-in-the-clouds hypothesizing to bring a smile to the face of any university economist (or SEC report-writer) looking for a job at a market manipulating hedge fund.

What the report does not contain is the names of any culprits, or any evidence that the SEC is trying to identify specific culprits. The report does not even contain a plausible explanation for what happened. If the SEC were charged with writing a report on the causes of the New Orleans flood, it would provide a hundred pages telling us how many cubic meters of water there were, how many molecules of oxygen and hydrogen the water contained, and plenty of assurances that water is usually good for the health, but it would forget to mention hurricane Katrina and the broken levy.

Bottom line: the SEC’s report was designed to make it seem like the bureaucrats have been busy investigating, when in fact they have been counting beans and picking buggers out of their noses. Meanwhile, the madness of the market circus continues, and we look up at that teetering tent with great trepidation.

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Mark Mitchell is a reporter for DeepCapture.com . He previously worked as an editorial page writer for The Wall Street Journal in Europe, a business correspondent for Time magazine in Asia, and as an assistant managing editor responsible for the Columbia Journalism Review’s online critique of business journalism. He holds an MBA from the Kellogg Graduate School of Management at Northwestern University. Email: mitch0033@gmail.com