The Kibble Bubble

A Colbert Report re-run about the financial crisis has just ended, so I turn the tv off, grab my jacket and the leash, and head out for a walk with the dog. She's oddly pensive as we head up the street. After a little while, she stops and asks, "What was that all about?"

"All what?"

"All that 'crisis' and 'bailout' stuff. It sounds scary."

"Well, a bunch of banks made a bunch of really bad loans, and people have lost a lot of money."

"I got that," she says. "I may be a dog, but I'm not stupid. I'm asking how they lost a lot of money."

"Well, it's complicated, but I'll try to explain. Let's say you have a whole bunch of kibble--"

"How much kibble?"

"I don't know. A lot. Fifty cups."

"Oooh! I like how this starts." She wags her tail excitedly.

"You won't like how it ends. Let's say you have fifty cups of kibble, and the Weimaraner across the streets comes and asks you to loan her one cup, and promises to pay you back five cups over the next year. Do you give her the kibble?"

"No! It's my kibble!" She looks offended at the very idea.

"It's only one cup, and she'll pay you back five."

"Yeah, but I don't trust that dog. Where's she going to get five cups of kibble? She's just going to eat the one cup, and I'll never get paid back. She's a bad risk."

"Exactly. Now, imagine that some human comes and offers to sell you a piece of paper for ten cups of kibble, and the paper says you get fifty cups of kibble over the next year. Do you buy it?"

"Sure. Humans have lots of kibble. They're good for it."

"You might think that. The thing is, the paper says that some human gave ten different dogs-- the Weimaraner, the two Yellow Labs on the next block, that beagle around the corner, a bunch of others-- some human gave each of them one cup of kibble, and they promised to pay him back five cups over the next year."

"But it's the human giving me the kibble, right?"

"No, the dogs are. They promise to pay whoever has the paper. The human just sold you the paper."

"Well, that's not so good. But as long as the human vouches for the dogs, I guess it's not too bad a risk."

"The thing is, he doesn't know any of the dogs. He bought the paper from somebody else, who bought it from somebody else, who bought it from a dog somewhere, who made the original loans."

"Wait a minute. Why on earth would anybody do that? You can't trust any of those dogs to give me back my kibble."

"Well, the theory is, if you put ten dogs together, they might not all pay you back, but as long as some of them do, you can get back the kibble you started with. If you get lucky, and they all pay you the kibble they owe you, you've got almost a hundred cups of kibble."

"That sounds good. So am I a lucky dog?"

"Of course not. You can't trust those dogs, and none of them can give you any kibble."

"Oh." She looks sad. "Well, ok, then I'm out ten cups of kibble. That's bad, but I've still got..." You can see the wheels turning as she struggles with the math.

"Forty cups left."

"Thank you. Forty cups left. That's not too bad."

"Right, except you wanted to get a lot more kibble, so you went and borrowed another fifty cups from some other dog, and promised to pay her back a hundred cups."

"Why would I do that?"

"Because you're greedy."

"Well, why would she give me the kibble?"

"Because you had forty cups, and showed her a piece of paper saying that you'd get fifty more in the next year."

"But those bad dogs didn't give me my kibble."

"Right, so instead of having forty cups of kibble, you have minus sixty. You owe some other dog sixty cups of kibble that you don't have."

"Well, that sucks."

"Exactly. That's the financial crisis, in a nutshell."

"So what's the bailout?"

"The bailout is that I step in, as your owner, and give you the hundred cups of kibble you need to pay off the dog you borrowed from."

"Oh! That's good." She wags her tail. "This is why we love you."

"Thanks. The problem is, because I had to spend money buying kibble to bail you out, I no longer have the money to buy you squeaky toys."

"But... but... but..." she's really flustered. "But I like squeaky toys! I like kibble! I want my squeaky toys and kibble!" She's about to melt down completely.

"Take it easy. Your squeaky toys and kibble are safe. This is all just a hypothetical."

"Oh." She calms down a bit. "So, hypothetically, who's to blame for all this? I bet it's that Weimaraner. I never did trust that dog."

(For the record, the dog in question is perfectly nice, and has very nice owners. I have no idea why Emmy dislikes her so much.)

"No, it's not her fault."

"But she borrowed kibble she couldn't pay back!"

"Yeah, but Alan Greenspan told her it was a good idea, and she believed him."

"Who's Alan Greenspan?"

"Another human. He's... a veterinarian, and takes care of a lot of dogs."

"Oh. Well, what about the human who sold me the paper? It's all his fault, isn't it."

"Not really. He bought the paper from somebody else, and trusted them when they said it was a good investment."

"So, it's the dog who made the initial loans, isn't it? Let's find him and bite him."

"He might be the right one to blame, but nobody remembers who he was. And anyway, he had a mathematical model that said the whole thing would work out. It was very complicated"

"Oh. Complicated math is very convincing to dogs."

"Also bankers, more's the pity."

"So there's nobody to bite? We're out all this kibble, and there's nobody to bite?"

"Nope. At least, nobody we can identify easily. All we can do is buy more kibble, and hope for the best."

"Hmmph." She looks dissatisfied, and we walk in silence for a while. "You know what? I bet it was a cat."

"A cat?"

"A cat. Whenever there's a crisis, and kibble goes missing, there's a cat at the bottom of it somewhere."

"That's an... interesting theory."

"You should see if any of these bankers are cats. I bet one of them's a cat. That's who you should blame."

"I'll be sure to pass that on to the appropriate authorities."

"Good." And, with the nation's financial problems solved, we continue on our walk.


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"instead of having forty cups of kibble, you have minus sixty"
Wait, that doesn't make any sense. Wouldn't it be the +40 initial cups and +50 cups (that you intially borrowed from the other dog) and -100 cups (that you now owe the other dog) = -10cups.

Also, doesn't this mean we should bite Alan Greenspan?

Thanks for explaining this in language a vegetarian dog can understand.
The bit I still don't get is that the bailout is putting kibble-liquidity into the market so that stupid dogs can buy more paper from others who have no more kibble to sell.
In fact, there is no kibble, or very little.
I think those dogs who sold paper and pretended it was kibble, and those who knew it wasn't and pretended otherwise to sell it on should be humanely destroyed. Maybe bale out their more honest, and certainly more careful, successors.

OK, I can see it now. You're not happy with publishing just "Physics with Emmy". You're also going for "Economics with Emmy."

Before you go overboard blaming the quants, have a look at

Try blaming the business guys (compensated on 90-day performance rather than 60-month performance) who disregarded things like the possibility of interest rates rising and employment falling, "No, of course, no large number of these mortgages will fail..." and "We can make more money packaging mortgages if we have more mortgages. Poor risks? Who cares, we can get insurance..."

By featheredfrog (not verified) on 08 Oct 2008 #permalink

I think when the music stops, all the dogs should eat all the kibble and pee on the paper and we should just start over again.

Ellen Jackson, author

I think when the music stops, all the dogs should eat all the kibble and pee on the paper and we should just start over again.

Ellen Jackson, author

I am a cat. And you can NOT blame cats.
I don't sell bad paper and I pay my credit cards, in full and on time.
You dogs are always trying to pass the buck... plus ya'll have bad breath!
Emmy, I do have to congratulate your human tho! My human started to understand and go "oh wow" and "Uh huh" and "that makes sense" for the first time in weeks!
When she leaves the room I'll use HER credit card to send some money to the DonorChoose program.
That'll teach her for shorting me on my treats because of the bad economy.
Alfie, in Sunny California.

aye lassie, this scotty dog says "keep yer monie poke under yer mattress". seriously, a great story and post. good for the soul.

This cat also denies all responsibility. If anything, I'm too generous with kibble.

Besides, it's not that there's almost no kibble, it's that it was faith kibble - the kibble was there so long as everybody believed it was. Now nobody believes in the kibble so it ceases to exist.

Clap your hands very fast and say "I DO believe in kibble!" to save the global economy.

You left out a very important part of the story: the CDS's.

"The Dachshund around the block heard the Weimaraner asking you for a loan of kibble, and you turning him down. She approaches you quietly and says 'Would you feel more confident lending to the Weimaraner if I promised to back him up? Just give me a cup of kibble up front. That way if he pays you the five cups he promised, you're ahead 3 cups, and if he doesn't, I do and you're still ahead 3 cups.'"

"Sure, that sounds like a great deal; how could I turn it down?"

"Then the beagle down the block hears about this, and asks the dachshund if he can get the same deal: he too will pay the dachshund a cup of kibble up front, in exchange for five cups if the Weimaraner doesn't pay you your five cups."

"But... wait... if the Weimaraner doesn't pay me my five cups? So the beagle hasn't lent the Weimaraner anything, but still wants insurance on my loan?"


"Sounds sorta strange, but I don't see what harm it could do."

"None, as long as the dachshund actually has enough kibble to pay off both of you."

"Ooh, I hadn't thought of that."

"The dachshund is a little worried about that too, so he talks to the Afghan two blocks away to buy insurance of his own. He'll pay the Afghan a cup of kibble in exchange for the Afghan giving him ten cups if the Weimaraner doesn't give you back your five cups, so he can pay off both you and the beagle."

She stared at me in disbelief for a moment, then gave a vigorous shake. "But... doesn't that mean we have to worry about whether the Afghan has that much kibble?"

"Yes, it does, so he buys some insurance of his own, from another dog a mile away that none of us has ever met."

"So let me get this straight. I'm lending the Weimaraner a cup of kibble to get five cups back. If he doesn't pay me, the dachshund will, with the kibble he gets from the Afghan, which the Afghan get from this other dog a mile away."


"What if the other dog a mile away, whom we've never met, doesn't have all that kibble?"

"Then it doesn't pay the Afghan, the Afghan doesn't pay the Dachshund, and the Dachshund doesn't pay you."

"I don't like that. Does the other dog have a human who'll bail it out?"

"Maybe, maybe not. We don't know."

This is just delightful. I have forwarded it to everyone I know. Thanks for the most lucid explanation I've seen so far.

But I am very unhappy that in my particular case, my squeaky toys and kibble are *not* safe.

By Wonderful! (not verified) on 24 Oct 2008 #permalink

The cat's in the Kibble with a silver spoon
The dogs are all asleep to the Greenspan tune.
When they pay the Afghan, I don't know when,
We'll get our Kibble then, boy,
You know we'll get our Kibble then..

"Only two animals have entered the human household otherwise than as prisoners and become domesticated by other means than those of enforced servitude: the dog and the cat."

-- Konrad Z. Lorenz, Man Meets Dog, 1953 (trans. 1954)