Weapons of Mass Destruction
The current economic crisis was kicked off by the housing bubble bursting, which most literate people understood, then the financial football was run back by real-estate-backed investments that included subprime loans, which many people found to be (to cite an old Vermont saying) like looking in a dark room for a black cat that ain’t there.
But there’s an easy way to grasp what happened, by considering that All-American treat, the hot dog.
The hot dog is basically a sausage, and standard advice for sausage lovers is never to watch it being made. Doubtless that are many companies that produce all-meat hot dogs, but lots of them involve grinding up some meat, too much fat, and perhaps a little gristle; seasoning it and adding too much salt; and counting on the intoxicating (to an evolutionary former hunter-gatherer) smell of hot grease to create a positive experience. “You sell the sizzle, not the steak,” goes an old advertising saying, only here there’s no steak. Or as one children’s song puts it, “Nose lips and ears are us, ears are us, ears are us, noses lips and ears are us, we’re a hot dog.”
So, in the real-estate-backed derivative, they mixed a little hot stuff, a little not stuff, and did a sizzling job of selling it.
Warren Buffet once called derivative investments “weapons of financial mass destruction.” Ralph Nader once called the hot dog “the deadliest missile ever made.” H. L. Mencken once said, “No one ever went broke underestimating the good taste of the American people.”
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