An analogy for the current financial crisis!

I borrowed this from a good friend. Thanks Craig!

Here is an analogy for the current financial crisis.

Suppose you own a machine that bundles paper, for example, wallpaper or mortgage securities. You can sell this paper for real money. The demand is high and growing. Someone creates a market for insurance on this paper. So you want to make as much of this paper as possible. Others see what is happening and bundle this paper, too.

Your fuel for this machine is mortgages. You need mortgages in large enough numbers to be able to bundle them into securities.
The question then becomes, where can you get a lot more mortgages for fuel? Start by making additional mortgages with borrowers who are already well qualified. Then move to less qualified borrowers. Another large source for these new mortgages is blacks who previously had been denied equal access to home loans.

It doesn’t matter to you if the fuel for your paper machine is bad. You are getting real money for your product regardless. However, bundles made from bad fuel will bring down the house of those buying the bundles. You begin making wallpaper so toxic that it eventually will destroy some buildings that use it and insure it. But you get paid just the same. Your paper bundles are always rated top grade for those buying, re-selling and insuring them, no matter how bad your source fuel. You make a fortune before anything goes wrong.

When things do go wrong, many who share your politics will blame the people you targeted to take on these new mortgages. Your associates blame your poor and middle-class fuel instead of you. If you or any of your well-heeled associates get caught in the inevitable collapse, the American taxpayer will be called on to bail you out.


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