I think SEC limit on Naked Shorting is good for stability in these uncertain times. Remember, they are not stopping regular (i.e. covered or borrowed) shorting; only highly speculative uncovered shorting that can destabilize the system by setting up negative feedback loops.
It really doesn’t create a ‘negative feedback loop’, but it does allow the naked shorter the equivalent of increasing the money supply since the naked short (if institutional) is effectively creating a 0% loan. On the other hand, if the stock being shorted is paying dividends, being a naked short will not help because you will still have to cover the dividends for the shares shorted.
What naked shorts really provide, is a potential for a very violent upswing if the company or its officers understand how to deal with it and if the company is viable. If the company is not viable, blocking naked shorts will not help the company’s survival.
