The financial crisis, a Pokemon parable  OCT 08 2008

This is perhaps the most succinct explanation of the current financial crisis I had read: The Financial Crisis, as Explained to My Fourteen-Year-Old Sister.

Kevin: Imagine that I let you borrow $50, but in exchange for my generosity, you promise to pay me back the $50 with an extra $10 in interest. To make sure you pay me back, I take your Charizard Pokémon card as collateral.

Olivia: Kevin, I don't play Pokémon anymore.

Kevin: I'm getting to that. Let's say that the Charizard is worth $50, so in case you decide to not return my money, at least I'll have something that's worth what I loaned out.

Olivia: Okay.

Kevin: But one day, people realize that Pokémon is stupid and everyone decides that the cards are overvalued. That's right -- everybody turned twelve on the same day! Now your Charizard is only worth, say, $25.

The only thing that's missing is the part of the explanation where the parents swoop in and pay Kevin full value for that Pokémon card, which allows him to keep lending money in exchange for cardboard rectangles.

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