I just left a little comment on Yahoo! just now in response to some nuffies who were pontificating about short sellers (no, I couldn't let it go). In doing so, it prompted me to think of a half0decent non-market analogy for this whole short-selling thing.
But before I 'go there'... notice that nobody is whining about short-sellers driving down Crude Oil prices over the last month or so (remember when oil speculators were to blame for rising oil prices?).
And now to my point>
Think about what a short seller is actually doing: selling something that is not actually in his inventory.
Can you imagine an economy in which nobody was allowed to sell anything that they didn't already have in their inventory? Where BHP couldn't sell a tonne of steel (or a tonne of ore) unless it had it in the yard? If commercial property developers couldn't sell a building until the thing was fully built? If Tenix could't sell a submarine unless they had one floating in the dock?
Entering a short position generates the requirement, at some future date, to acquire the inventory to create an equivalent long position. Nothing more.
While I'm here, I also want to point out that Helichopper Bernanke told Congress in May that "The Federal Reserve does not foresee a broader economic impact from the growing number of mortgage defaults and home foreclosures" (link); in June he maintained that "sub-prime-related losses could be anywhere between $50 billion and $100 billion".
Maybe he is secretly Dr Evil, just woken up from a 30-year coma. Either that, or he is almost as big a douchebag idiot as his predeccessor.
Regardless of which is true, one thing is clear: anybody who believes anything that comes out of his gob, deseres everything that subsequently happens to them.