Wall Street Helping Funds To Short Financial Companies, Such As Their Own

Hedge fund executives are telling CNBC that Wall Street is beginning to market a new hedging product that would allow them to short stocks on the banned short sale list (see CNBC article). No doubt that this will be a new derivative-based product given that puts and other derivatives are still allowed to be sold, and that market markers are still allowed to short securities in order to hedge their own writing of derivatives. Many opponents of the new products feel they are nothing more than a loophole to the SEC order. Of course, those introducing the products stress that they will only be used for hedging purposes. Yet, it is still not clear to me how you verify this, or whether this will be just another "wink-wink" arrangement where it is assumed that everything is for hedging purposes. If the shorting product is abused and impossible to verify for hedging, then the ban on shorting financial stocks will prove to be useless, unnecessary, and itself a loophole for creating stable markets and handcuffing those who are thought to be causing the problem. In fact, does anyone else find it strange that the very firms that are protected by the short selling ban are developing products to find a way around the restrictions? Are hedge funds biting the hand that feeds them, and are financial companies just facilitating their own destruction? It all seems a little odd to me. Then again, I am still trying to understand the logic of mark-to-market accounting for illiquid assets, or why rating agencies can be so wrong and so late, yet still have the power to start the financial dominoes falling. Not a lot makes much sense right now.