While weakening fundamentals helped undermine the value of companies seeking or badly requiring new capital, attention focused more sharply on the activities of short sellers, who were hard at work punishing fellow investors as much as those running their companies.

The Financial Services Authority has woken up to what has been going on, including some dubious practices by hedge funds and other speculators.

As the FSA pointed out in its announcement on Friday, there is nothing illegal about short selling, but when it involves market abuse, there are questions to be answered – and where it unsettles the market, stability needs to be restored.

The FSA's demand for greater disclosure is a sound one, although by restricting this measure to short sellers and to rights-issue periods it appears somewhat discriminatory and underestimates the short sellers' role in creating liquidity.

There are also concerns about its proposals for restricting ownership of shares during rights issues in case they should impede the market's normal operation. That looks a tad fussy if the greater benefit is to cut out the sharp swings in share prices and the malpractices that soil the City's reputation.

The authority's new guidelines will be introduced on Friday, and it has drawn criticism that it failed to consult on what is a significant development. But it is damned if it does, and damned if it doesn't. The watchdog got a mauling for the delay in tackling Northern Rock and now it gets a kicking for acting too quickly.

Short selling is hardly a new phenomenon, so the FSA has had plenty of time to think about this. Even so, by acting so swiftly and at this particular time, it does appear to be responding to the crises at the banks. Would it have moved so quickly if it had been a less well known company that was suffering at the hands of the short sellers? Some would argue that the banks have brought misfortune on themselves and should be forced to suffer the consequences. Even a rights-issue flop at HBOS would not deprive it of the money it needs, although it may put some pressure on its highly paid executives and, with debt markets almost closed, heighten concerns about the ability of large firms to raise equity.

These concerns aside, the FSA should be encouraged to get on with policing the City for any signs of underhand dealing and, more generally, to ensure there is an orderly and efficient market. Friday's upturn in the shares of those suffering from the latest short-selling epidemic clearly showed there was general approval for its actions.

The FSA was certainly added to HBOS's Christmas card list, but the bank still faces a long run in before its rights issue is complete and a lot can still happen, even the unthinkable. A bid is surely not on the cards, although one investment manager whispered "HSBC" to me last week as a potential predator to keep an eye on.

Holyrood powerless to affect big picture

THE Lib Dems' enterprise spokesman, Liam McArthur, last week called for the Scottish Government "to take urgent action to boost business confidence in Scotland". A worthy enough claim for someone in his position, but it begs the question about what exactly Holyrood can do.

McArthur expresses concerns about the swingeing cuts to the enterprise budgets and the transfer of Business Gateway services from Scottish Enterprise to local authorities. "The SNP also continues to ignore our calls for a revised skills strategy," he bleats on.

Let's get a sense of perspective here. The Scottish Government is powerless to affect any real change in circumstances that are well beyond its control.

It cannot reduce interest rates, control inflation, regulate the behaviour of reckless banks, influence the exchange rate, affect the minimum wage or halt the activities of oil speculators and short sellers on the world's stock exchanges – the real factors that have contributed to the fall in business confidence.

No matter which party happens to be in charge, the Scottish Government taking "urgent action" would mean diddly squat against the forces of the global economy.