The Three-Liar System

A brief look at our financial world.

Part 1: The One-liar System

Liar 1: Lend me lots of money!

Sucker: Sure!

[Later . . .]

Sucker: Pay me back!

Liar 1: Sorry, the money's gone, I gambled it all away!

Sucker: Frak!


Part 2: The Creation of the Two-Liar System

Liar 1: Lend me lots of money!

Sucker: I don't trust you.

Liar 2: No problem. I will sell you insurance that guarantees that if Liar 1 doesn't pay you, I will. See? Now you will be paid no matter what.

Sucker: OK, it's a deal.

[Later . . .]

Sucker: Pay me back!

Liar 1: Sorry, the money's gone, I gambled it all away!

Sucker: Wow, good thing I have the insurance.

Liar 2: About that . . . it seems I sold too much of that insurance and I don't have enough reserves to pay all the claims. You get nothing.

Sucker: But I thought insurance was a highly regulated industry?

Liar 2: Well, this isn't exactly insurance, it's a complex derivative that acts kind of like insurance. It's a total free-for all.

Sucker: Frak!


Part 3: The Three-Liar System

Liar 1: Lend me lots of money!

Sucker: I don't trust you.

Liar 2: No problem. I will sell you insurance regarding Liar 1 . . .

Sucker: But I don't trust you either.

Liar 3: I am a ratings agency. I will rate Liar 2 as "AAA super-sparkly investment-grade chocolate bonbon."

Sucker: Oh, well in that case, it sounds great! Let's do the deal.

[Later . . .]

Sucker: Pay me back!

Liar 1: Sorry, the money's gone, I gambled it all away!

Sucker: I'll rely on the insurance then.

Liar 2: Sorry, I'm broke too.

Sucker: But how did you get such a high rating then?

Liar 3: About that rating . . . I just "downgraded" Liar 2's debt to the new rating of "ZZZ- completely toxic rat droppings." Sorry.

Sucker: What good are the ratings then, if the original rating was a meaningless fraud?

Liar 3: They help keep money flowing through the system.

Sucker: Frak!


Conclusion

Adding more liars to a system does not make it any safer. All three systems are essentially the same. It is "turtles all the way down" as the old saying goes, or in this case, liars all the way down.