I have news for Bernanke and the SEC. This won’t work. China had short sale restrictions on and it did not stop the Shanghai index from falling over 50%. Insolvency cannot be cured by short sale restrictions and many of those companies are insolvent.
It also appears to be free money for stock traders. With restrictions on shorting, then these financials will soar short-term. Traders will pile on buying them for what seems an almost guaranteed quick gain before the prices drop again.
This is truly a panic measure and 100% guaranteed to fail.
In my recent blog post [ http://babaksjournal.blogspot.com/2008/07/more-efficient-shorting-tactic.html ], I propose a hopefully more efficient tactic for shorting involving setting up a net hedged position in 2 separate brokerage accounts. The tactic is designed to mitigate the regulatory hurdles that make it difficult to time the short sale of a hard-to-borrow stock.
Short sellers might find the idea useful.