Faulty Market, Bad Ideas and The Lucky Few
This is an excellent example of why short selling is bad (I know the fault observation arguments to). Some "unidentified source" can say anything they want and it can impact markets...
The problem is that while legitimate shorting can provide some people with benefits illegitimate shorting can provide almost anyone with benefits if they are willing to break the rules. (that gets into why laws have a negligible impact on behavior, but that's another discussion)
Apple's Jobs Has Serious Heart Attack
Microsoft CEO Has Stroke: In Coma, Chances Poor
Oracle Larry Ellison Killed at Pedestrian Crossing
Any one of the above examples, coming from reliable sources, will incite market disturbances . The problem is that "reliable sources" are a commodity and some people can benefit from providing fictitious information. Many times the same "some people" have a vested interest in seeing something go down... Short Selling of any kind is not only a loophole that causes problems, it's really bad policy (selling something you don't own is fraud in any other circumstance).