Monday, March 16, 2009

A Kielbasa-like Financial Debacle of Epic Proportions

The food-financial metaphor-of-the-week award goes to Gregory Hess, a professor of public finance at Claremont McKenna College, who waxed poetic about collateralized debt obligations -- the toxic loan product that's felling the banks.

Hess noted that the bad securities are composed largely of the mortgages of millions of Americans, only some of whom have defaulted. The problem is that the mortgages were chopped up and mixed together and can't be put back the way they were.

"If you've made sausage, can you put the meat back together again? But even if there's only one small bit of the sausage that's bad, you're not going to want to eat the sausage," Hess said. "You can't undo it. So what you have to do is create a new market for questionable sausage. And in the end, everyone is going to have to hold their nose and eat some of it." [Source]

The Wurst financial disaster since the Great Depression.


Barbara said...

Well written article. I love the comparison to Kielbasa.