[hga]

"Blind speculation" on positive outcomes is I'm pretty sure fantastically worse, that's a cause of the worst sort of bubbles, the ones that destroy money wholesale (deflation), with sobering examples like the Great Depression and Japan's two Lost Decades (and counting ... and only WWII broke us out of the Great Depression).

Whereas covered short selling pretty much by definition has limited effects; for the purposes of the below, A > B > C

It works by someone borrowing (I don't remember the details so I'll accept Daniel_Newby's calling it renting) something and selling it at current price B. The short seller hopes that the price drops, so that he can buy it back at price C and make a profit on B - C - transaction costs etc.

One limiting factor is that unlike normal investing there is no theoretical limit to the short seller's losses. If the price goes up, he has to buy it at A and he loses A - B - etc. So you need to exercise greater care in taking a short position.

Short positions must be reported in the US and that sends information to the rest of the market. As Daniel_Newby points out, covered shorts make markets more "efficient", an important term of art and an important goal.

I've never come across a defense of deliberate naked short selling that made sense to me (it can also happen in "oops" situations, or so people say); as far as I can tell the only legitimate debates WRT it is how extensive the non-accidental type is and how hard should the latter be cracked down on.