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(i might be partially pulling the following out of my ass)
Shorting allows people to make money on a declining market, so that investors don't completely pull out, which might be even more catastrophic.
Look at real estate. Once the market started seeing a decline, all the investors fled away and sales completely plummeted. Without the sales volume, it's having a very hard time to get back on it's feet.
Short selling might be a necessary evil to keep gears turning in wall street.
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