The case against allowing short sales

Why the physical short is bad.

The recent Gamestop short squeeze highlighted short selling. As I’ve explained here at slightly greater length, a short sale is basically selling an IOU note denominated in stock. After completing the short sale, the short seller holds some amount of cash and has the obligation to deliver a share of stock to another person at a particular point in time.

Standard explanation of a short. Emphasis added showing how the short seller has the same obligation whether or not the short is “naked.” Image remixed from 1 and 2. Original images by user Grochim on Wikimedia.