One of the biggest problem with short selling, IMO, beyond the potential they distort the supply and demand in manipulative groups, is the fact that whether manipulative or not, they distort the market forces.
Suppose, for example, a journalist does some investigative work and puts together available public information to disclose management weaknesses or even management fraud. So, the journalist blows the whistle, and what happens next.
The victums of the management are the shareholders. But, the shorts jump in ahead of the shareholders, to make money on the revalations. The price of the stock collapses, as it should, but the victums are hurt twice as bad as they would have been if the shorts didn't jump in an crash the stock.
In many cases the down push on the PPS turns out to be unjustified or overdone, but the shareholders are victimized by short sellers, IMHO.
So what exactly is the service these short sellers provide to the markets. One argument is the put fear into management and keep them from making as many mistakes, and regulate the market to some extent. But is that worth the cost of destroying the victums of the problem.
Everyone learns overtime from their experience (i.e. their errors), including the short selling crowd and the short selling cabals. Today, they are more efficient with more tricks then ever. IMO, supply and demand should set prices, without distortion from short sellers.
The new rally cry of investors should be that "we don't need no stinking short sellers!" EOM
