Ban on Shorting Brokerages?

Apparently Chris Cox is considering a ban on shorting, modeled after his market heroes in China where shorting is also not allowed (and has since dropped over 60%). The initial reports from CNBC indicated he was going to ban all shorts, but a Bloomberg article indicates that he's since limited it to just brokerages:

The commission is considering banning short-sales of the shares of Wall Street brokerages after Morgan Stanley fell 39 percent this week, said a person familiar with the matter.

If you've been following this story, CNBC announced originally that it was going to be a ban on ALL shorts. My guess is that Paulson and Bernanke, both well-versed in how markets function, got to Cox and gave him an earful. He now needs a way to save face.

Since shorting adds liquidity to the markets, and liquidity is inversely related to volatility, this ban would be a huge gift to those who bought volatility. It would almost certain crash the stocks involved, since no-bid situations would result during trading hours.

The real question should be: What horrible event is about to unfold that is about to drive stocks through the floor? Is there some new nationalization of companies that is going to kill stocks? We are witnessing history as it is being made, so sit back, relax and pull up a beer. The wild ride continues.

Update: Blog comments are reporting that FDIC folks are in CA to shut someone down tomorrow. Don't know whether they are big or small... Please leave any info here.