About five months ago, I was invited to Manhattan for a recruitment weekend at a well-respected New York City hedge fund. Sadly, I had no idea what a hedge fund actually does, so I turned to Wikipedia.

Wikipedia told me that hedge funds are investment funds that “hedge” against market fluctuation by engaging in a variety of fiduciary tactics, most notably short-selling. Short-selling, it seems, is a technique whereby investors borrow stock from a lender and sell it on the open market, with the expectation that the stock price will go down. Short-sellers can then repurchase the stock for the lower price, return it to the lender and pocket the difference.

As a child of capitalism, I found this a strange concept. In effect, short-sellers are the opposite of ordinary investors: Whereas “long” investors hope the stock market does well, short-sellers hope their stocks fail. Badly.

In an economic system predicated on investment capital, this seems like a bad thing. After all, isn’t positive market performance what we all want? For most of us, the answer is yes: a healthy stock market means more investment, more capital, more jobs and less Tim Geithner on the nightly news. But short-sellers are invested in market failure. They want to see beautiful things torn apart, sort of like the kids in Grahame Green’s The Destructors, only without the youthful charm.

Predictably, some short-sellers have been known to drive stock futures down by manipulating the market. Just ask Jim Cramer, the bald, bearded and evidently angry host of CNBC’s Mad Money, who got a serious tongue-lashing from Jon Stewart two weeks ago. For all those potential viewers out there, Mad Money depicts Cramer as a market guru who doles out stock advice while throwing various toy props around the studio. Ironically, Cramer also has a portrait of Vladimir Lenin hanging in the back of the set. Apparently he’s a fan.

In his pre-CNBC life, Cramer was a high-powered New York City hedge fund manager, a job he described in a 2006 video interview with TheStreet.com. In that interview, Cramer says that when he was positioned short at his hedge fund, he would “create an impression that a stock [was] down” to shake investor confidence and lower the stock’s value. “What’s important when you’re in the hedge fund mode,” Cramer says, “is to not do anything remotely truthful, because the truth is so against your view that it’s important to create a new truth to develop a fiction.”

Aside from appearing borderline psychotic on CNBC, Cramer also seems to be a horrible, horrible person. What Cramer is describing is “naked short selling,” whereby investors sell stock that doesn’t actually exist to drive prices down. Naked short selling is illegal, but the practice has become so prevalent that between 2005 and 2007 Bloomberg reported that 4,558 companies, or 1 in 3 companies traded on American exchanges, may have been affected. That figure is based on the number of companies with especially high numbers of trades that could not be completed because stock was never delivered to the buyer, presumably because that stock never existed.

Of course, market manipulation is not just a problem in the universe of short-selling. Executives at companies like Enron have been known to lie about corporate performance to boost the value of their stock in the face of huge corporate losses. Such behavior can lose investors huge sums of money if and when the company goes bankrupt.

But when short-sellers manipulate the market, even the strongest companies can collapse. By creating a false impression of investor uncertainty, short-sellers can drive a stock lower and lower until the company itself is destroyed. Through no fault of their own, hundreds, thousands or even tens of thousands of employees can find themselves out of work.

According to the smart people who talk to me on TV, most short-sellers are not criminals. But whether or not they play by the SEC’s rules, all short-sellers are inherently positioned against the health of our economic system. At best, short-sellers are rooting for a stock to go down; at worst, they are engaged in activity that unfairly drives down market prices and destroys small- and mid-sized companies.

Defenders of short selling argue that the tactic serves as a necessary balance in the market. With so many investors pumping money into public companies, they say, it’s useful to have someone on the other side selling securities and driving overinflated stock down. Short selling, they say, is a positive consequence of the free market at work.

Although I have no interest in becoming an investment banker, I think free market capitalism is pretty cool. If a sense of economic idealism drives some people to employment at Goldman Sachs, more power to them. If a sense of greed drives them to the same job, so be it: one man’s greed is another man’s ticket to starting a small business. The problem, I think, is when our economic system encourages someone to become invested in economic failure. It is a dangerous reality, especially in a system based on the health of the stock market, that there exists a large group of powerful people who are rooting for stocks to fail. Philosophically, this seems like the antithesis of capitalism. Practically, it portends the worst kind of market manipulation.

The benefits of short selling are very real, but the costs are much higher. While it’s doubtful the collapse of AIG and Lehman Brothers was tied directly to market manipulation by short sellers, such manipulation has driven and will continue to drive strong companies out of business. Our economic system should be run by people who are invested in its success, not by people who cheer when stock prices go down. Those people need a new hobby. Just ask Wikipedia. I swear it said the same thing a minute ago.