Someone had to do something about those short-sellers. It is entirely debatable whether the woes that beset the HBOS share price this week and drove it into the arms of Lloyds TSB were down to the Armani-suited sharks of Mayfair. The bank was in enough trouble already. But the share price dive that presaged and scuppered the £4 billion rights issue this summer was certainly down to spivs and speculators at our less salubrious hedge funds.

In that instance, the Financial Services Authority found itself unable to take any action. Now there is a suspicion that the FSA, which first looked at short-selling in 2002 and then again this year, has been bounced into the ban on going short in financial stocks by this week’s decision of the US Securities and Exchange Commission to introduce its own restrictions on the practice.

The FSA denies this, of course. But it if was bounced, it was not the only one. Even the Swiss, who usually view financial regulation with the same horror as the effects of global warming on their precious ski slopes, have taken action. Yet short-selling is not only legal, if unaccompanied by a whispering campaign about your target, it is also the essential oil that allows the market to go around, a fact not entirely appreciated. Market-makers who do not necessarily have the stock at a given moment go short briefly in order to facilitate the trade, expecting to pick up the necessary shares in due course.

The London Stock Exchange therefore prevailed on the FSA, behind the scenes, to allow this benign form of short-selling to go ahead. A little-noticed announcement yesterday confirmed this exemption for electronic liquidity providers.

For the rest, for the sharks of Mayfair, the abrupt bounce in the banks’ share prices, should it continue, will provide some of them with their comeuppance. Their sufferings will elicit little sympathy. But it should not be forgotten that their activities were only possible because of the greed and incompetence that brought the banks to their current pass.

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