A timely must-read: Kevin Nguyen explains the financial crisis to his kid sister using Pokémon cards as an analogy.
Kevin: Imagine that I let you borrow $50, but in exchange for my generosity, you promise to pay me back the $50 with an extra $10 in interest. To make sure you pay me back, I take your Charizard Pokémon card as collateral.
Olivia: Kevin, I don’t play Pokémon anymore.
Kevin: I’m getting to that. Let’s say that the Charizard is worth $50, so in case you decide to not return my money, at least I’ll have something that’s worth what I loaned out.
Kevin: But one day, people realize that Pokémon is stupid and everyone decides that the cards are overvalued. That’s right–everybody turned twelve on the same day! Now your Charizard is only worth, say, $25.