May 6, 2009
Besides my concerns about large investors manipulating the market, I worry that unrestricted short-selling opens the market and our economy to financial terrorism.
People with a grudge against the U.S. can take and then increase their short positions after causing or even threatening some sort of terrorism (not unlike 9/11) and then actually profit from it while destroying investor wealth.
Limits on how much short interest is allowed in any one stock and/or trading stoppages after a 15% (for example) drop in any stock and/or perhaps an overall stoppage of trading when a major index drops more than 6% (for esxample) would be helpful.
Of course, strictly enforcing naked short-selling goes without saying.