Like a piano player in a cheap bar, I take requests. I had one this week, from a woman who asked if I might spend more time explaining how the economic system works. Delighted to oblige. The subject this week is the short selling of shares. It's technical, but it explains some of what's been going on. If I can't make you laugh, the recent response of the authorities ought to do so. I'll be addressing naked short selling, so send the kids out to play in the road.

I'll start at the most basic level. We all know about buying shares. You ask a broker, by phone or online, to buy you some shares, and you pay for them a little while later. Easy. You hold the shares until you make a profit and then you sell them. You get your money back plus the profit. If you sell at a loss, your money comes back minus the amount lost. Or you hold onto the shares until you go to the great stock market in the sky.

While you are holding the shares, you are what's described as "long the shares". Don't panic. If you're wearing clothes right now, you're long the clothes. It just means you own them. You buy shares, or "go long", because you believe that in due course, their value will rise and you will make a profit. (There are other reasons to buy shares, but that's the overriding one for us regular folk.) Now. Get hold of something. It is entirely possible, and entirely legal, to sell something you don't own. Not the next-door neighbour's car or your spouse (both illegal). Shares, I'm talking about.

You phone or click on your broker and sell, let's say, 100 shares of The Really Useless Company (TRUC) at $50 each, even though you don't own so much as a single share in TRUC. Your broker says "Whacko the diddle-o", takes $5,000 out of your account (plus his commission), or arranges an interest-bearing loan to you for most of that amount (a business called "margin" that we'll address at another time), and hey presto, you're short 100 shares in TRUC.

Why would you do that? Answer: you think the price of TRUC shares is going to go down. You think this because of your decades of research and analysis into the market, or because some drunk in Dockyard told you so. Or your wife works there and tells you that 10 minutes ago, the CEO ran off to Brazil with both his hot administrative assistants. (Bad example; you can't trade in TRUC shares if your wife works there, because you have inside information.)

Anyway, you think the shares are going to go down, so you short them. Let's say they do. They fall from $50, at which you sold them, to $30. Brilliant! You buy them immediately, at $30 each, match up the ones you bought with the ones you sold, and make a profit of $20 a share. Clever, eh?

Well, maybe. Before you rush out and start shorting everything in sight, know this: shorting is one of the most dangerous things you can do with your money. Most people who short shares also hedge their bets at the same time they sell short by arranging to buy some other shares in the same company, in a different transaction, at a fixed price. This limits their risk, and is known as covering the short.

If you just short the shares and don't hedge the exposure you have, you become instead what's known as a "naked short". That's what your husband meant when he came home from work and said: "What a day! I've been naked since 11am", just before you hit him.

Naked shorting is as dangerous as it gets, and here's why. I learned this at the age of 18 and it scared me so badly that I have never forgotten it, and never been a naked short. (Although I have been naked, and I am short.)

Here it is: If you buy 100 shares at $15 each, going long, and the company immediately goes out of business, you lose $1,500. That's all you can lose, ever. You put the money up; worst case, it evaporates completely; you cuss and weep; and you move on. But ... say you sell 100 shares you don't own at $15 each and become short the shares.

Say the company then announces that it has discovered the secret of perpetual motion, nuclear fission and eternal life. Its shares jump to $200. The bad news for you is this: you sold them (short) at $15. Now you have to buy them back at $200. Or $2,000. Or whatever they are trading at, because having sold them first, sooner or later you must buy them back. You can't be short forever, unlike Mickey Rooney.

Your liability, if you sell short, is in theory unlimited. Those were the words that scared the pants off me (leaving me, by an odd coincidence, naked) when I was a lad, and they should scare you, too. Unlimited liability means jail for the rest of your life, because you don't have unlimited assets.

Jail means things too horrid to think about, such as no pudding. How can you have your pudding if you don't have your freedom? (Best read in a Scottish accent.) I trust you got that message and are now cowering under the couch. Buying shares, you know what your maximum possible loss is. Selling shares short, you risk your home, your family, and your life. In short (geddit?): don't do it! Whoa, I used three exclamation marks in the same article. I never use those. I must be serious.

And now two footnotes. Lately, no one is buying shares. Share prices fall, it seems, daily. Partly, this is because no one has any confidence, and partly, a couple of weeks ago, it was because short sellers were running amok. Knowing that no one was buying, the shorts were shorting like maniacs, and, most specifically, shorting in turn each of those banks that fell, domino-like, in a series. Frankly, you couldn't really lose money shorting banks three weeks ago. There was no resistance to the short sentiment.

Then the bozos who run stock exchanges (not in Bermuda, where no bozos are employed, of course), made short selling temporarily illegal. Dumb and dumber. In the days after that move was made, Wachovia still lost half its value, because half the people who held its shares decided to sell them before it went belly up.

Short selling is the part of the market at work. Shorts take ridiculous risks and must one day buy back the shares they sold but don't own. Shorts often lose money. And yet, we fear and loathe them. It is somehow considered anti-social that people make money on the way down, we think, because we are acclimatised to losing money on the way down. Making a profit out of someone else's loss is unAmerican, gosh darn it.

If short selling were to be permanently banned, as has been discussed, we should at once tune in for the hedge fund death spiral. Hedge funds make money on the way up and on the way down, using shorting as one of their tools. Without that ability, they lose their edge, and without the edge they become mutual funds. It would take several $700 billion bailouts to retrieve them from the hole they would disappear down.

Like banning short selling, the authorities also take action when the value of shares starts shooting upwards at a good clip. They have a rule that each trade must be not too far in value from the previous one. All these rules are known as market intervention. What you think about that will be driving in part, your reaction to current events.