Given my job, and my dorky financial background, I’ve been following the public market meltdown fairly carefully.

As have Jess, my friends, my colleagues, and my relatives. Yet, when I talk to most of them, they seem to be following only the surface details. They don’t fully grasp what a CDO or CDS really is, much less what the underlying causes of the chaos might be.

Blame for which, I think, falls at the feet of financial journalists. Sure, explaining complicated financial concepts and structures is difficult. But that’s exactly what they’re supposed to be doing: breaking jargon down to plain English, in a way that allows people to actually, fundamentally understand what’s going on.

So, as a bit of public service, let me take a quick stab at a concept several people have asked me about of late: naked shorts. If this works, and if there’s reader interest, I’d also be happy to circle back to explain other concepts that seem similarly confusing.

So, naked shorts.

As most people know, ‘shorting’ or ‘short selling’ a stock essentially means betting against that stock. In other words, when you buy a stock the usual way (called going ‘long’ on that stock), you’re betting that the value of the stock will go up. If you buy the stock for $10, the price goes up and you sell it for $15, you’d make $5.

A short, then, is the exact opposite. If you invest when the stock is at $10, and pull your investment back out when the stock has dropped to $5, you’d similarly make a $5 profit.

Most people, however, are also entirely unclear on how that actually can work. So, to illustrate, let’s talk about your car, rather than a stock.

Imagine that you own a car. Then imagine that, for a small fee, you let me borrow that car from you.

So far so good. Now imagine that I sell your borrowed car for $10,000. A year later, say I want to give you your car back. So, I go on Craig’s List, and I find the same make and model. Only, by now, it’s selling for just $5,000. Which is excellent for me, since I can buy the car and give it back to you for $5,000, then pocket the $5,000 difference between that and the original sales price.

Voila. I just ‘shorted’ your car.

What, then, is a ‘naked’ short? Basically, the exact same thing. Except without borrowing the car first.

Of course, if I do that with cars, instead of ‘naked shorting’, it’s called ‘fraud’. I just sold you something I don’t actually own.

In the financial markets, however, it makes at least a little sense.

If I buy the car from you, you have to actually deliver it to me. And then if I sell it again to somebody else, I have to deliver it to him or her next. With cars, that isn’t a problem, as people tend to own them for a while. But with stocks, it’s entirely possible for the same share to be bought and sold and bought and sold countless times in a single day. So before stock trading went digital, actually delivering all of the stock certificates back and forth any time someone shorted a stock was doubtless a pain in the ass.

In that situation, a naked short made sense. Better to wait a couple of days to see who the ultimate holder of those stock certificates would be before loading up the wheelbarrow and sending them over.

Plus, in ye olde stock market, buyers and sellers were actual people, who traded back and forth with each other every day, and who therefore had ongoing relationships and a basis for interpersonal trust.

In a digital world, that network of trust is largely gone, and the underlying rationale – saving the work of transfering physical stock certicates – no longer makes any sense. Yet the practice persists – or, at least, did so until it was banned last week.

In all honesty, I suspect the actual impact of naked shorts has been oversold, and that they did relatively little to contribute to our current mess. But they do make a great example of, and can serve as a kind of microcosm for, the current crisis.

Because, it turns out, bringing old financial practices into a new, digital world, a world that no longer maintains direct relationships between buyers and sellers or lenders and borrowers, and doing so without carefully re-looking at the new implications of those old practices, is a recipe for all kinds of disaster.