I have to somewhat disagree with you. My position is probably somewhere between both of you.
I am in favor of traditional shorting, as normal trading, subject to very strict limits relative to borrowing shares and settlement of trades.
I am not in favor of allowing shorting in manipulative transactions, perhaps those that you may be describing. Much, if not most, of the problem area has been discount equity and convertible deals, which have an inherent incentive to drive a stock's price down. Usually, we retail shareholders are the last to know.
I do not like "sure thing" deals which basically are the taking of money from retail shareholders and giving it to insiders and vulture funders, with a share to the distribution network of perhaps hedge funds and MM's.
I'd prefer full disclosure and would prevent insider dumping in advance using the same logic, that is, regulators should realize that their first job is to protect and inform retail investors and that this should be the base of fair and equitable markets.
If the net result is that companies have to declare that they are required to borrow at 50%, then fully disclose it, let the share price tank, and then we retail investors can decide if it is a good investment. What happens now is that we are led by pumping PR's to believe that everything is great. Then insiders, vultures, hedgies and others, do a deal, make their "sure thing" profits, pile on with naked or advance shorting, resulting in stocks that go down 50-90% in value after such a deal.
Why should there be a policy to keep this information from retail investors? It just doesn't make sense.
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