>Second, why is it evil to short the housing market?

People don't understand the basic concept that in order to buy something, someone needs to sell something...which is going short.

This is completely misguided as AnimalMuppet pointed out. The following is a decent article explaining how shorting works:

http://www.investopedia.com/university/shortselling/shortsel...

No. It's only going short when you sell something that you don't have - that is, you sell something borrowed. It's not clear to me how one would do that with houses. You could short homebuilders and mortgage companies, but that's about all.

Mortgage payments are bundled into securities called RMBS. By shorting these securities, you are not shorting the mortgage company, but the assets themselves (the mortgage receivables).

Can you short those?

Yup, best way to think about them are as bonds in which the credit rating is determined by the underlying asset quality rather than the company itself.

TIL.