If you’ve ever wondered just how the decision-making process which caused countless (supposedly) intelligent financial analysts to buy into securitized subprime mortgages and then cause the global economy to tank, a recent Dilbert might just have the answer:
I think “it’s called math” and “I feel all savvy” pretty much wrap it up.
For those of you who are wondering how seriously to take this analogy – the logic behind securitization is basically just as Dogbert explained (buy up a lot of bad mortgages/cows and expect at least some of them to make it). The cartoon does leave out one (very dangerous) assumption which, if true, almost makes the whole scheme make sense (but just almost): mainly that the price of cows/homes is always increasing – so much so that even if one sick cow dies, you can still make a fair amount selling the carcass. That this entire scheme depended on being able to sell dead cows (foreclosed homes/re-financed mortgages) for more than they were originally worth is still mindboggling to me.