[jayruy]

Seeing shorting as "making a bet against a company" is an accurate, but overly simplistic view of modern financial theory.

Say I want to buy a stock index that includes BP, but don't want to expose myself to their current volatility. I could buy the index and short an equivalent amount of BP to replicate the risk I am looking to take on.

Or maybe I am bullish on BP, but don't feel like I have good knowledge on the Oil&Gas industry. I could buy BP and short a basket of stocks that collectively represented the performance of the industry.

This is what people talk about when they mention "complete markets" - the ability for investors to create any desirable risk profile - insuring themselves against events they deem overly speculative.

When the government bans short selling, it's essentially saying "oops, shit has gotten so bad that everyone insuring themselves would risk the collapse of socially important businesses... we got this one (ie bailouts). don't worry, we'll just take it out of your taxes/currency".