Let me be perfectly clear about my opinion on short selling. It is a necessary part of the financial system. I short sell. The market needs short sellers like Doug Kass (of whom I am proud to know) and Bill Ackman. What we do not need are rogue short sellers who abuse the rules and manipulate markets.
This is akin to the insider traders that were prevalent in the 1980s. They were criminal, they abused the financial markets and profited at the expense of other market participants. We needed to separate the Ivan Boeskys from the Warren Buffetts. That came with criminal prosecution. Thankfully Boesky is gone from the markets and Buffett remained all of those years.
Now we need to separate the abusive short sellers from the Kasses and Ackmans, the later being the good guys. Those short sellers that use exchange traded funds to get around married put rules or spread false rumors or violate Regulation SHO have got to go. I predict that within the next few weeks we will see the criminal indictment of an abusive short seller. This will have a dramatic impact on the markets.
In conclusion, keep short selling - those short sellers that play by the rules. Throw out the bums that act like the short version of insider traders.