The Credit Crisis Explained (In Terms Of Sandwiches)

Maybe it's a little late, but if you're still confused, I have prepared the following explanation of the credit crisis in a manner near and dear to my own heart.

When you go to a baker to get your bread, the baker organizes all the ingredients, bakes a loaf, and takes your money in exchange for that loaf. You depend on his expertise. Similarly, when you buy a house, you depend on the expertise of the banker to "bake" you a mortgage. It's a unit, a commodity, created through the financial expertise of the banker. If you imagine that the entire pool of mortgages in the United States is 100 loaves of bread, here's what happened over the past several years:

First of all, keep in mind that not all mortgages failed; it was just around 6%. So imagine, if you will, that six out the hundred loaves of bread have gone bad. They're moldy, baked with melamine, full of weevils, whatever. Pick your poison, they've gone bad. It used to be that those six loaves could be readily identified as bad and avoided. Now, however, we have these financial instruments called "derivatives," which are created out of whole commodities like mortgages. The process of turning mortgages into derivatives is sort of like taking all hundred loaves and chopping them up. Some end up as slices for sandwiches, some end up as croutons in salads, some end up as crumbs for baking onto fish or chicken, some end up served with little spreads of cheese and salmon at weddings and piano recitals, some end up mixed into bread puddings, some was mixed with egg and made into French toast.

The important thing is, you can't really tell anymore which loaf the bread came from. There could be a sandwich made with one slice of good bread and one slice of bad bread, there could be good croutons and bad croutons in the same salad, you never know. So word got out that some of this bread was no good, and some people found bad bread in their meals, and then other folks started to wonder if any of this bad bread got into their meals as well. They stopped eating as much, and the value of meals made with bread was thrown into doubt. No one knew if these bread-based meals were worth eating or not, so the people who had them were afraid to eat them, and they certainly couldn't sell them or serve them to their families. So institutions with these derivatives on their books began to wonder about their financial health, but they couldn't unload the derivatives because their value was suspect.

At that point, even though only a small percentage of the bread/mortgages were bad, no bread/mortgage-based products were considered safe, and people stopped dealing with bread. This wreaked havoc on people's diets, and they started looking for alternatives to bread, for bread-free meals, just as investors fled to precious metals and government bonds (think of them as meat and soy-based dishes, the Atkins diet of the financial world; sure it looks fine in the short run, but eventually your kidneys will fall out in your underpants). People whose diets were almost entirely bread-based began to starve to death, like Indymac, Lehman Brothers and Bear Stearns.

In that environment, no one knew who would get sick next, and how much bad bread had already been eaten, so people with a stake in the health of the populace started to get wary. Health insurers found that too many people were getting sick or were at risk of getting sick for their business model to work. Large insurers, such as AIG, were threatened with failure because not only had they invested in bread, but they had offered insurance policies to people with high-bread diets. Some bread was found in meals that had been exported and sold overseas, and some bread was known to be in frozen TV dinners, socked away in freezers somewhere, ready to rear its ugly head at some undetermined future date, without warning.

Even non-traditional operators had insurance-like stakes in the health of others. The "credit-default swap" market was akin to one person taking on responsibility for the health of ten, twenty, maybe thirty other people. It was like a day-care operation, where one person guaranteed the health of other people's investments for a small fee. But it wasn't just one day-care, it was as if a whole neighborhood had a rotating playgroup arrangement, where everyone's kids would go to a different person's house on different days of the week, at different times of day, so that in some fashion, everybody was responsible for everybody else's kids. And they were all feeding them bread-based snacks, not knowing if some of those snacks contained bad bread. Naturally, people began immediately trying to pull their kids out of day-care, and refusing to offer day-care to other kids, and trying to stow all their bread-based foods in the back of the fridge where no one could see them. This caused the basic machinations of daily life to freeze up, and ruined many good restaurant chains, grocery stores, and bakeries. Some kids couldn't be found, because no one remembered whose house they were supposed to be at and when, some kids showed up at day-care to find the doors locked, it was a mess, because no one had been keeping track of the schedule.

And the reason it's so hard to fix is that you would have to have a health inspector go through every item of bread-based food in every single person's refrigerator to determine if part of the six bad loaves had gotten into the food. And there's just not enough health inspectors, or day-care regulators, because in the mid-nineties the number of health inspectors was cut as part of a program to make more bread (mortgages) available to more people. And starting this century, the rules governing day-care centers (credit-default swaps) were completely thrown out courtesy of a late-night last-minute addendum to an appropriations bill by Sen. Phil Gramm. And even those health inspectors that were on the job were encouraged not to work very hard by the Bush administration, which was never really into health inspections to begin with, and didn't see the value in boosting the Health & Human Services (federal regulators') budget. They believed that kids were perfectly capable of getting to day-care on their own, and the kids that couldn't deserved to be abducted or left to die out in the cold after school, in a sort of market-based natural selection.

So now that the whole system has been thrown into chaos, the feds are working with the bakers and grocery store owners and the neighborhood playgroups to try to identify where the bad bread is, so that they can confidently assure a large amount of people that their specific sandwiches are safe to eat. Legislators are attempting to throw more light onto the day-care schedule and sort out where everyone's kids are and whether or not they're sick from moldy bread consumption. Everyone is probably going to have to throw out some sandwiches, and some good sandwiches are going to get thrown out with the bad ones, just to be safe. Eventually, however, more bread will be baked, and so long as that bread is baked to a high standard, and if the health inspector is there, watching the guy at the deli as he cuts up the bread to make sandwiches, fewer bad loaves will make their way into the market, and the value of any given sandwich or bread pudding will return to its normal level.

Which is important to the health of the nation.

Oh Come On Dot Org

Apparently, "Petraeus" sounds enough like "betray us" to make some intern at Moveon.org think it would be a great idea to make up a new and disparaging nickname for the good General. Come on people. Who green-lighted this? Are you TRYING to torch your credibility? Let me introduce you to a little bit of important PR calculus: if you're going to engage in character assassination, you have to do so in so clever a manner that even your target can't deny the humor without being pegged as a stuffed shirt. Homophones aren't going to cut the mustard.

So embarrassing.

General Petraeus is a pawn, okay? He is trying to put a good face on things because his job is to win the war in Iraq. Not to decide whether we should be fighting it. Not to declare the policy failed. Just to win. If his boss gave him the latitude to decide those other things, he would be a less sympathetic character, but in the current situation, THAT'S NOT HIS JOB. Do you suppose he got where he is by giving up? This guy is doing his level best to spin gold from hay, and while that may make him a little delusional, it doesn't make him malignant. The president may have been acting like this is all Petraeus' baby, but seriously. This is George Bush we're talking about. Not exactly what we would call a reliable source.

So please, Moveon.org, next time you find yourself in the kind of paroxysm of group-think that led to that headline, remind yourself that that's how teenagers and coke-addled studio executives think, not effective political actors. The rest of the copy in the ad wasn't terrible, but who do you think read past the headline? Anyone who isn't already in the choir? Not so much.

Bush league, folks.

A Brother's Gonna Work It Out

Follow me for a second: you walk into the polling place, present your ID, and stroll over to the voting booth. You look over the options, you select which bond issues you support or don't support, you wonder briefly if this is one of those Diebold machines you read about, and then you get to the screen where you are going to select a presidential candidate. You're a smart person, you've paid attention to the issues, and you're just about to vote for the candidate whom you feel is best qualified for the job, or at least the best qualified among the usual pathetic pool of applicants, and then you stop. When reaching for the screen, you have caught sight of your hand, the back of it, specifically. Wait a second, the skin on your hand is a shade of brown, and not a tanned brown, or a latino brown, or a blotchy liver-spotted brown. It's the color of skin that a certain subsection of the populace has, those who are casually termed "black people."

Oh shit. It's time to rethink things. You're black. You pull your hand away from the voting screen. You've just realized that you're not a person, you're a Black Voter. That means that your vote isn't a normal vote, it's a very special vote, fraught with all sorts of heady cultural horsefeathers. And then, right before your eyes, the other options on the screen fade away, and the only candidates you can see are Hillary Clinton, Barack Obama, and John Edwards. The issues of the day fade from your mind, and all you can think is, "Gee, Hillary spoke in a fake southern patois during that one stop on her campaign, that was pretty great. Obama has the same skin-color, within the strictures of Jim Crow law, as I do, but is he black enough? John Edwards said he would help poor people, and Kanye and I care a lot about poor people's issues ever since every face on the television during the Katrina footage was as dark as mine. WWAlSharptonD?!"

Whoa! That's quite distressing!

If this happens to you, the Fiery Sword recommends that you quickly remind yourself and the Washington Post that there is a dream extant, dreamt often and dreamt before, that one day a man's worth will be judged not by the color of his skin, but by the content of his character. At which point you are free, once again, to vote your conscience, and not your melanin. This pre-election public service announcement has been brought to you by respect for ones' self and one's fellow human beings.