The magnitude of a difficult to understand problem is directly proportional to "teh stupid" that government deploys to solve it.

Henry Paulsen, Sec. Treas: "Boy, the economy sure sucks. It looks real bad."
Ben Bernanke, Fed chmn: "Don't I know it. Companies failing left and right. It's getting hard to find companies to buy 'em... even at fire sale prices. Chase got 92% off the retail price of Bear Stearns. BoA wouldn't pay anything for Lehman Bros - we had to bribe 'em with a get out o' jail free card."
HP: "And now AIG... no one wants 'em."
BB: "Well... we could get the suckers... I mean taxpayers to buy 'em. It'll only cost $85 billion."
HP: "That's right! We can do that! Cool! (But lets be sure to not call it nationalization.)"
(next day)
HP: "That worked for a few hours... but then my IRA was back in the sh*tter again. What now?"
BB: "You own a bunch of printing presses... right? Print a crapload of money... say a quarter trillion or so."
HP: "Dang, you make this fiscal policy thing look easy. We do it all the time. What could go wrong?"
(next day, phone rings)
HP: "Charmin company, Henry speaking"
BB: "Toilet paper... I get it. Ha ha. Hey, that quarter trillion of money you printed yesterday didn't do much good."
HP: "I'm all outta ideas."
BB: "People are betting that stock is going to continue dropping. That looks bad. Make 'em stop."
HP: "You mean by outlawing speculation? I'm no expert, but isn't that kind of what the stock market is about?"
BB: "No... it's about making policy-maker dudes and decider guys look good. Let's force people to only bet that stocks will go up!"
HP: "Hot damn! We are the smartest guys in the room!"

Fed temporarily outlaws short sales.

As the blogger observes above, the immediate short term effect of a ban on short sales is to force those who have shorted stock to purchase shares to cover their positions. This artificially inflates prices for a few days. Expect the market to zoom up 1000 points or so in the next week, only to crash hard in the next 30 days.