Stock Market Game Week in Review

The Stock Market Game is a curriculum-based teaching tool that allows students to invest a hypothetical $100,000 online stock portfolio to learn about long-term saving and investing.

Suffice it to say there was a lot of news this week, but one of the bigger stories was about short-selling and the government's actions with respect to it.

Aggressive short-selling has been blamed for eroding the share prices of companies like Lehman Brothers, which last week was forced to file for bankruptcy, and Merrill Lynch(MER Quote), which felt it had no choice but to sell itself to Bank of America(BAC Quote).

Now, short-selling is not the only factor responsible for the crashing of the financial sector. Wall Street firms created a lot of their own problems by underwriting and loading up on securities linked to toxic mortgage loans.

But regulators felt that in order to prevent another big firm from going under and sending further tremors throughout the global financial system and economy, they needed to do two things: enforce rules against a kind of short-selling that is illegal, and temporarily halt short-selling in financial companies.

On Thursday, the Securities and Exchange Commission increased the penalties against illegal short-selling to include federal fraud charges. Then on Friday, in an emergency order, the SEC halted short-selling in the securities of 799 financial companies. The move will remain in place until Oct. 2, but could be extended, the SEC said.

So you and your students may be asking, what the heck is short-selling anyway? And more importantly, what's illegal short-selling? Both are complicated, but important to understand if you want to know what happened this week.

Simply put, short-selling is making a bet that a stock's price will fall. The practice is inherently risky but can be very profitable if you're right about a stock's price going down. It works like this: You borrow a certain number of shares of stock from your broker -- let's say 100 shares of a stock that's trading at $10. Once you borrow the stock, you sell it.