In rumors that Bear Stearns’ chairman of the executive committee, Alan Greenberg, called “totally ridiculous,” the Wall Street firm saw its stock drop as much as 14 percent Monday as buzz centering on potential insolvency drove heavy selling of shares in the second largest RMBS underwriter. Reuters quotes Greenburg:

“They’re totally ridiculous,” Greenberg, a legendary trader who formerly ran the bank, said of the market talk. “They’re rumors. What can I do about it?”

Bloomberg reported that the drop was the company’s largest since the 1987 stock market crash:

“There’s an insolvency rumor and concerns on liquidity, that they just have no cash,” said Michael Mainwald, head of equity trading at Lek Securities Corp. in New York. “There’s been rumors of this for the past week or two.”

Rumors that didn’t come home to roost, apparently, until Moody’s decided to slash ratings on hundreds of Alt-A mortgage securities Monday. The rating agency downgraded the ratings of 163 tranches from 15 transactions issued by Bear Stearns from 2005 to 2007. The Wall Street Journal reported that the bank has roughly $6 billion in remaining exposure to Alt-A mortgages. Lehman Brothers Holdings maintains the largest such exposure, estimated at about $15 billion, and will itself begin another round of layoffs — 5 percent, or roughly 1,400 employees — according to reports that also surfaced Monday. Disclosure: The author held no positions in any publicly-traded companies mentioned in this story when it was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.