The recent backlash against short sellers is only the latest wave of scapegoating of the minority of market participants who engage in this basic kind of transaction. Every practitioner and scholar of the financial markets know that short selling, far from destabilizing the functioning of the markets, it actually makes them more efficient. Let me be clear, I am not speaking of fraudulent practices nor of naked shorting. Restricting short selling only favors "irrational exuberance," for it is akin to tie one of the two hands of the forces that make a price reflect the market's assessment of the value of a corporation. You can find an articulate discussion as to why restricting short selling is deleterious for the financial markets in http://blogs.wsj.com/marketbeat/2008/09/19/five-reasons-why-the-short-selling-ban-stinks/ Furthermore, I would like to point out [the following appeared as a comment in the above referenced blog] that there is a growing body of research that posits restrictions on short sales are one of the causes of bubbles and excessive price volatility. In a recent presentation Michael Lipkin exemplified with the case of identical stocks traded both in Shanghai (no shorts) and Hong Kong (shorts allowed) how shorting decreases volatility(http://www.ieor.columbia.edu/pdf-files/Lipkin_M_09_08_08.pdf p. 34-5)

In a recent Wall Street Journal piece Deborah Solomon, David Enrich And Daniel Fitzpatrick (http://online.wsj.com/article/SB122238888884077341.html), wrote "BB&T Corp. Chief Executive Officer John Allison said a pay ceiling would constitute 'a massive subsidy for incompetence.' In a Sept. 23 letter to some members of Congress, Mr. Allison wrote: 'How will companies attract the leadership talent to manage their business effectively with irrational compensation limits?'" Mr. Allison's qualification of compensation limits as "irrational" seems disingenuous and, well, irrational at best. I would like to remind Mr.Allison that demand for such limits has arisen from the very performance of the CEOs and leading executives who have led the US into the current financial crisis. The pay scale of American CEOs has been growing to multiples of their European and Japanese peers. Has their performance been proportionally superior? The financial markets are answering with a resounding "no!" I submit it to Mr. Allison that it is precisely the current compensation structure of many financial institutions' executives that has contributed to the current crisis. Geared toward quarterly earnings performance, such incentives often neglected fundamental issues of long term growth including the very validity of the business model and even the survival of the corporation. Is that a rational way to pursue shareholders best interest and maximize their investment?