If you’re puzzled by what happened to HBOS shares last week, then this sobering Telegraph column by Jeff Randall may help.

Put simply: I know that you want to buy 100 shares in Jayar Junk. The shares are trading at £10 each. We strike a deal at that price, and I promise to deliver them in one week’s time. At this point, I still don’t own any Jayar Junk. No matter, my buddies at the Rumour Mill are about to go to work.

Through a series of postings on dodgy websites, anonymous emails and loose talk in dealers’ watering holes, we spread the story that Jayar Junk is running out of readies. Very soon the shares start falling, to £9, £8, £7. In angst-ridden markets, there is no bottom. When they hit £5, we buy 100.

Bingo! You are contracted to take them from me for a total of £1,000. My cost is just £500. I double my money and you are ripped off. It’s no more complicated than that. Like a spiritualist medium, the Rumour Mill relies on its victims believing an illusion: stock market ectoplasm.

It’s not illegal “to short” a stock, ie, sell shares that you do not have. Several reputable hedge funds made millions by “shorting” both Northern Rock and Bear Stearns. The law is broken, however, when the Rumour Mill creates malicious falsehoods with the aim of driving down prices.

For ordinary folk, whose pensions are jeopardised every time the Rumour Mill starts turning, these are troubling times. They tuck away a few quid each month in the belief that they are investing for retirement. They accept that there is risk, but don’t (yet) regard this form of saving as a day at the races.

But in his book, The Truth About Markets, Oxford economist Professor John Kay writes: “Most transactions in securities markets are not about sharing or spreading risks; they are like transactions in a betting shop. The people who engage in them believe they are deploying their superior knowledge, but this can never be true of more than a small minority of players.” The trick for regulators is to make sure that this small minority has gained its advantage openly and honestly, without recourse to chicanery. Experience tells us, however, that this is extremely difficult, if not impossible…