Why is Shorting Allowed

The financial authorities has credited that shorting is partly blame for the 2008 Financial crisis. Hence this bring me to a question why the financial authorities actually allowed shorting since it can create disastrous market problems.

I asked my brother, who is a auditor about this and he says it is due to profits. Banks make alot of profit through shorting. However this should not be a reason as this issue can cause problem in the market just like deforestation can earn money but at the expense of climate changes. Surely the financial authorities would not allowed this.

So I asked Tom Yuen, a floor trader an trainer about this question. He told me that shorting actually helps the economy. This is an interesting statement that I pondered. He later told me that shorting came up from derivatives and brought into stocks which I knew. He further elaborate how Futures came about with no answers why authorities allowed shorting.

I pondered about his statement about shorting actually help the market. I came up to this thought. If shorting is not allowed, market will be less flexible. At low price, many people will want to buy but no body will want to sell as compared to if there are shorts. So how will market move if there's no seller?


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