A Champagne Analogy for our Financial Crisis

I was listening to the radio show Marketplace on Friday and they had a piece with a brilliant analogy for explaining one of the major causes of the present financial crisis: CDO’s, or Collateralized Debt Options. Paddy Hirsch uses a champagne bottle filling a pyramid of glasses to explain how CDO’s work, and why they have contributed to the meltdown. He makes a notoriously difficult concept easy to understand. It’s a great piece.

Imagine if all economic concepts, including mortgages, 401k’s, and other consumer debt products, were explained to people in such easy terms before they took out the loans or made investments?