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 …
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.
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.
At the same time, you’re having trouble paying back the $60 you owe me. So what would you rather do: try and pay me back the $60 or just default and give me your $25 Charizard?
Olivia: I’d give you the Charizard.
Kevin: Exactly. Who wouldn’t? Now, the bank — I mean me — has lost $25 when I expected to make $10. What’s the lesson here?
Olivia: Pokémon is dumb
Really, our economy would be in a much better state right now if financial institutions had traded in something more stable, like Meowth cards.