May 5, 2009
Short sales are not a problem when people are positive. Stocks have a wave action in the short term and there are investors that trade in the short term. These investors help to smooth the wave action by buying at the trough and selling near the peak. The reverse occurs when people are negative about the short term. Short trades with out actually having the shares owned and authorized for short sales by the trade organizing brokerage company will just exaggerate the market value of any particular issue. Naked sales in negative markets are thus killers of equity prices. You have to have the ban on naked sales at all time because a market can turn negative more quickly than a person can turn a faucet on and off.