Wednesday, October 15, 2008

Pop Culture Economics: A Question of Belief

Yes, I'm still trying to sort through all the ongoing economic debacle. And yes, I'm still utterly baffled. But as always, Pop Culture is there to help me begin to start to almost barely grasp some of the insanity that led to the current crisis.

Way back on "Monty Python's Flying Circus," there was a sketch about a stage magician named "The Amazing Mystico" who had been hired to build a block of flats (that's a British-ism for "apartments"). Mystico was particularly attractive as a building contractor because his construction costs were practically nil; his buildings were perfectly sound as long as the hypnotized tenants continued to believe in them. When a little doubt crept in, that's when disaster loomed. A quick thanks to my friend Steve for reminding me of this classic bit.

As I understand the loaning practices that precipitated the current economic mess, it's as if The Amazing Mystico had gotten hold of the entire banking industry. Lenders like Fannie Mae and Freddie Mac were encouraged to make as many loans and mortgages as they possibly could, regardless of whether those taking out the loans were likely to ever make good on their payments. Each of those individual loans was essentially worthless, but through a complex computer model, hundreds of them would be bundled together and then that bundle would be sold and traded over and over again as if it was worth something. As long as the people doing the trading continued to believe that a bunch of worthless things added together amounted to one valuable thing, the system was fine. But once the tiniest bit of reality snuck in, the whole shebang came tumbling down, just like Mystico's flats.

If I may mix my Pop Culture metaphors, the economic situation is also reminiscent of Wile E. Coyote pursuing the Roadrunner out past the edge of a southwestern desert cliff. He can hang suspended in mid-air as long as he doesn't look down, defying physics through shear force of his single-minded pursuit and willful ignorance. But reality and gravity are insistent things and neither can be ignored forever.





No comments:

John and Dave talks Oscar nomination predictions