(FORTUNE Magazine) – In the days following the World Trade Center attack there was talk on the Street that perhaps short-selling should be banned. The worry was that shorting--a bet that stocks will fall--would exacerbate the expected slide in stocks when trading resumed. The cloud over the practice grew darker amid rumors that alleged terrorist Osama bin Laden had profited from shorting the shares of airline and reinsurance companies. At one point, CNBC's Ron Insana asked Art Cashin, UBS Paine Webber's chief floor trader on the New York Stock Exchange, whether short-selling should be prohibited. Cashin sidestepped the question, and probably for good reason: It shouldn't be. And what happened on the first day of post-Sept. 11 trading shows why.

As convoluted as it may sound (and short-selling is always convoluted), short-sellers may have actually been among the most committed buyers--that's right, buyers!--the day the Dow fell 684 points. To understand how that could be possible, consider how shorting works. It involves borrowing shares and then selling them with the hope of buying them back at a lower price at some point in the future. The stock goes down; the short makes money. But in the U.S., by law, such a short sale can only occur on an "uptick"--when a stock's price rises. That Monday, shares were falling so far and so fast that not only were the shorts incapable of shorting, but several short-sellers say that their firms were actually net buyers, snapping up stocks to cover outstanding short positions. "That clearly produced buying power in the marketplace and helped somewhat to reduce the decline," says veteran short Paul McEntire, chairman of Skye Investment Advisors in Los Gatos, Calif. In other words, as bad as it was, it would have been worse were it not for the shorts.

Of course, vilifying shorts is nothing new. In the early 1600s, investors worked themselves into a speculative frenzy over New World trading outfits like the Dutch East India Co., then blamed short-sellers when the bubble burst and the shares sank. (Sound familiar?) Kathryn Staley, author of The Art of Shortselling, points out that shorting was subsequently banned in Amsterdam in 1610, and then again in Great Britain during the South Sea Bubble in 1720, in France at the beginning of the revolution, and in the U.S. during the War of 1812. All of those bans were eventually repealed.

Still, the shorts were in a tough spot on Sept. 17. Buying stocks, it was said, was a patriotic duty, a way for the average U.S. investor to combat the intended effect of the terrorist attacks by supporting the market and getting the wheels of capitalism spinning again. By that logic, shorting a stock and profiting from a drop in the market would be the financial equivalent of blasphemy. One large short-seller told me he was torn between this apparent duty to his country (to go long) and his duty to his investors (to go short). So he did what any good American would do: He consulted his lawyer. "My attorney told me I have a fiduciary duty to short," he says. Financier George Soros echoed those sentiments in a recent interview with Reuters. "I'm at a loss to understand what is unpatriotic about [shorting]," he said. "It probably helps the market to reach whatever level it is going to go to."

One reason for this is that shorts help provide liquidity. Shorts often sell when everybody else is buying, and conversely (as we saw on Sept. 17), they often buy when everybody else sells. That creates a cushion of sorts when stocks are in free fall. "The overall impact on the market is zero," McEntire says. "While shorts can exert downward pressure when they sell, they can create upward pressure when they buy back." Individual investors benefit because the shorts, McEntire says, "repress the prices of overvalued stocks--stocks that if the public bought would be bad buys."

That's the second important function shorts play. I confess to having a soft spot in my heart for the shorts because they're among my best sources, as they are for many journalists and even regulators. (You think I stumbled on trouble at the likes of AremisSoft, Sunbeam, Lernout & Hauspie, and Boston Chicken by reading through a random stack of SEC filings?) The finest shorts are part private detective, part forensic accountant. They play a critical role in ferreting out fraud, debunking hype, and spotting businesses that are about to turn bad. As I wrote in this space three years ago (see "Short-Sellers: The Market's Real Heroes" on fortune.com), on Wall Street it's the shorts who really wear the white hats. Get rid of them and you'll see what I mean.

One final note: In the past few months it has been as easy to make money shorting stocks as it used to be going long on random technology plays. Lest you be tempted to start shorting on your own, think first about how some of those long positions have turned out recently. And then remember the difference between the two approaches: When you go long, you stand to lose up to 100% of your investment. When you go short, there's no limit to how high a stock can go, which also means, alas, that there's no limit to how much you can lose. So while I wouldn't recommend doing what they do, I certainly encourage investors to let shorts do what they do without condemnation. They help keep the markets clean--and that's about as patriotic as you can get.

Herb Greenberg is a senior columnist for TheStreet.com. Questions? Comments? Contact him by e-mail at herb@thestreet.com.