EconAir

You go around to farmers with cows. You buy all the cows and pay the farmers a small fee to milk the cows and sell the milk. You pay for the cows with ass(et)-backed securities called MBSs (Milked Bovine Securities) that you tell investors are udderly safe. But some of the cows don't give enough milk (cow flow problem) or give no milk at all. You take some of the asset-backed securities, say they're backed by the subprime cows, and use them as collateral to sell another set of securities called CMOs (Cow Milk Obligations). Then you buy CDSs (Cow Dried-up Swaps) from AIG (Angus Insurance Company) to insure the CMOs when the cows stopped giving milk. If you work it right, you collect more on the CDSs than you pay out to retire the CMOs. The money you get from selling the dead cows go to pay the CLOs (cow leather obligations). You could also sell CDOs (cow dung obligations) that depend on how much cow dung is produced. This is a typical Wall Street product - turning sh

A basic assumption in economics and business finance is that individuals are rational in the sense that they compare the cost and benefits of a decision. Generally, this means comparing the cost of investing or consuming today to the expected benefits in the future. Cost is usually the price of the product or investment; expected benefits are harder to figure. The rule is simple; if the expected benefits are greater than the cost, buy it. If not, don’t. Even if the cost is spread out into the future – a car paid for with a cash down payment and a car loan – it is relatively easy in theory to discount future costs along with expected benefits back to “present value” (today’s dollars) and do the comparison. One question that economics and finance doesn’t ask is: Does how you make a purchase or investment affect the buying decision? Does it matter if you pay cash or use a credit card? Theoretically, the answer is no. But recent neuroscience research indicates that the answer