Why are naked shorts ever allowed

By now, most of you have probably heard how naked short-selling has destroyed Fannie Mae and Freddy Mac. The question many of you may be asking is “why is short-selling even allowed”? The answer can probably be found in the fact that many volatile companies that may be good to short simply do not have that much stock to short and rapid speculation ensues. That and big players can stand to gain alot by driving down a stock price via short-selling. The practice is ridiculous and should be illegal because technically you shouldn’t be able to short-sell shares that you haven’t borrowed first. Think about it from and logical perspective. There are a total of 100 shares in a company and all those 100 shares are taken and no one is willing to lend you any shares to short-sell. So you somehow magically come up with 50 shares that don’t exist to short sell. Where did those 50 shares come from? In reality, they don’t exist. You can’t randomly inflate the value of a company by fifty percent.

This is bad because when a company’s shares are sold, it drives the stock price down. So when more shares than the actual entire net-worth of the company are sold via short-selling, the stock falls through the floor and many people loose a bunch of money. The SEC is tightening restrictions on naked shorts. Hopefully its banned altogether.