I was never in favour of the FSA banning short-selling so am relieved they've decided to let the ban expire.
I blogged about this back in September when the ban was introduced, pointing out that short-selling acts like the proverbial canary in a mine. It alerts the market to who's going to go bust next.
Recessions are miserable and painful (especially if you're looking for a first serious job in one), but they are also a good way of clearing the chaff. Companies such as Woolworths and Waterford Wedgwood were not viable before the recession - the downturn has merely dealt them a mercifully swift death blow. Wedgwood, for example, had debts of £415 million and hadn't made a profit for six years.
Any institutions knocked out by a frenzy of market speculation probably wouldn't survive that much longer anyhow. Some killings are better done quick.