I agree that the problem here is the basic concept of loaning shares of stock. It's a practice that just doesn't make sense except for people playing games. You could say the ability to bet against a company isn't a game, it's a strategy. But the whole concept of stocks is primarily shared ownership, not a casino. Short selling could be banned but don't hold your breath.
My understanding is that short selling is still a useful tool for signaling that a company is overvalued. Without short selling we would see even more asset bubbles and then eventual crashes. Plus short selling allows for hedging strategies which allows investors to, well, invest more, which is generally a good thing.
Short selling can't really be banned without mangling the right to enter contracts. There's too easy of an effective substitute - start writing contracts that have the payments to the same parties as shorting a stock.
You make a contract that's functionally equivalent.
You think the judge is going to say "oh, well it's not _exactly_ short selling... YOU GOT ME!"? Intent is everything, those sorts of tricks don't work. You're up against judges and other humans on this sort of thing, not some AI you're trying to trick.
That contract is called a CFD and I'm not sure it's legal in the USA, but there are other synthetic forms of shorts that are. They do not have to follow the same rules as short sales such as respecting the uptick rule when it is in effect.
I understand that synthetic shorts exist, I was speaking in the hypothetical that the SEC decides "no more short selling, period."
If there was a rule against short selling, I imagine that synthetic shorts would also have those rules applied to them unless there are enough differences to qualify them as "not short selling".
Though I guess the uptick rule already doesn't apply, so they're already seen as different in some sense?
practically speaking - short selling helps the market find the right price for the security. this is a vitally important feature of markets.
philosophically, shorting is an emergent feature from basic property rights. I have a thing, you want to borrow it, we're both consenting adults and negotiate an arrangement.
