What just happened?

This was stolen unabashedly from my pal Eric over at iTulip.com.

As Paul Volcker pointed out over the weekend, the global financial system has disintegrated and no one has any idea how to fix it. Lots of good ideas about how to fix the banking system, but as we've explained, even if any of these things are done -- and we are not holding our breath -- it's the endogenous credit system that's the real problem, the one that used to magically allow consumers to lend new money into existence by taking out a car loan or charging dinner on their Visa card, the one that depended on the now defunct securitized debt market.

Most reasonably aware North Americans have, like me, watched this mess develop for over 20 years. Credit was substituted for savings. Two incomes were substituted for one. Other people's savings were substituted for our own.

These past 20 years have been like a long bus ride into the middle of a desert without food or water, with the driver all along telling us that, no, we are not heading into a desert but traveling along a long stretch of beach that leads to an ocean with palm trees and swimming pools, we just can't see the water yet.

All along the way the skeptics look out the window and say, "We're going the wrong way," and, "Shouldn't we turn around or at least stop to pick up drinking water in case you're wrong?"

"Stop being so negative," yells the driver over his shoulder. "You don't understand neo-classical geography."

Meanwhile, the rest of the passengers in the bus sit watching Survivor on portable DVD players or reading about Britney Spears's hairstylist in The National Enquirer.

One day the bus runs out of gas. The driver gets out, looks around and says, "How about that. Here we are in the middle of the desert without food or water. Who could have known?"

He pulls out a cell phone and shortly a helicopter rescues him and his friends, leaving everyone else behind to fend for themselves.

The End