I'll echo the posts claiming that a short-sell ban is a recipe for disaster. Short selling isn't just a way of betting on the market declining. It's also a hedg

I'll echo the posts claiming that a short-sell ban is a recipe for disaster. Short selling isn't just a way of betting on the market declining. It's also a hedging strategy used by arbitrageurs, market makers, and options traders. Actually, as far as speculative short-selling goes, one can argue that it doesn't do enough in bringing prices to fair values. Here's why. With most stocks, it's possible to sell them short and make near-fair interest on the cash. For example, your clearing firm might charge you 3.8% on money borrowed for long positions, but give you 3.4% on cash held in short positions-- a 40bp spread, which is costly but not a show-stopper for a skilled trader. Although you can't withdraw the money without closing the position, because you have more cash than equity, you're earning interest on the cash component. In cases where a stock becomes hard to borrow, banks will lower the interest rate on cash held, sometimes to negative values. When this happens, the stock inevitably trades higher than a fair market value, because of the penalty involved in short-selling it. Another danger of short-selling, related to the hard-to-borrow factor, is that clearing firms (banks) can force short-sellers to close out their positions at any time. They're intrinsically limited in how much short interest their customers may hold, and will, on occasion, force less preferred customers to close out, possibly unfavorably, in order to allow preferred customers to short-sell. In addition to "hard to borrow" securities and short squeezes, speculative short-selling is generally very dangerous, especially in a bubble, for more intrinsic reasons. If you're short a stock, and it goes up in the short term, you must put more money in the account (to build equity to a reasonable level) or close the position, early and unfavorably. There are a large number of people who bankrupted themselves by shorting Nasdaq futures at 3000 in 1999. They thought tech stocks were overvalued, and they were right, but they nonetheless were creamed when the thing shot up to 5000 before coming back down. Arbitrageurs and market makers are good for markets. They provide a lot of liquidity, meaning that bid-ask spreads tighten and it becomes possible to buy or sell large blocks without moving the market to an unfavorable price. Essentially banning what they do is going to result in complete disaster.