For those trying to understand the credit crisis as it deals with sub-prime mortgages, there’s a handy video online called “The Crisis of Credit” and explains in simple, easy to understand terms exactly what the heck happened to the sub-prime mortgage market. The problem is that the sub-prime mortgage crisis was only the trigger to the much larger derivatives crisis.

One thing that is clear is that this problem was caused, in part, by a lack of oversight. We all have different opinions on how much, if any, the government should regulate Wall Street. However, when I talk about oversight, I mean that the government didn’t bother collecting the data that they needed to make informed decisions about whether or not regulation was needed, how much, and what type, and as the Daily Show has revealed, the business media didn’t bother collecting the data that they needed to inform individual investors about whether or not particular companies were doing well, or were about to fail.

And just like networking, the simple truth is that you can’t manage what you don’t measure. Forget any ideological ideas you may have about the role of government in business. Even if you believe that the market works best in completely lasses-faire, you can still keep an eye on the market without choosing to interfere in the market.

But back to the crisis at hand – part of the problem wasn’t just that no one was keeping an eye on the situation, but also, that the measurements we did have were just plain wrong. The main reason everyone invested in the top tier of the sub-prime mortgaged based CDOs is because they were rated by the rating agencies as an AAA investment – the same amount of “risk” as treasury bills, the safest investment there is.

But if the insurance companies had the ability to pay off on the insured mortgages, none of us would be in this mess. Instead, here’s what happened – insurers were selling “Naked” credit default swaps. Here’s how Rolling Stone put it:

In a "naked" CDS, neither party actually holds the underlying loan. In other words, Bank B not only sells CDS protection to Bank A for its mortgage on the Pope — it turns around and sells protection to Bank C for the very same mortgage. This could go on ad nauseam: You could have Banks D through Z also betting on Bank A's mortgage. Unlike traditional insurance, Cassano was offering investors an opportunity to bet that someone else's house would burn down…

What this meant is that the insurance companies had to pay off multiple times the value of the original investment if that investment failed.

If this sounds vaguely familiar to you, it’s essentially the same exact plan that Max Bialystock and Leo Bloom hatched in Mel Brooks’ “The Producers.”

I thought about drawing an analogy here to oversubscribing (or overleveraging?) your lines, betting that everyone in the company won’t need to use tons of bandwidth all at once… but when a line gets oversubscribed, the network merely gets congested. Apparently, when overleveraging credit default swaps, the economy blows up.

Of course, if all of this crisis talk is confusing – full of big numbers, strange acronyms, and misunderstood, misapplied concepts – well, there’s a case to be made that Wall Street’s Leo Blooms and Max Bialystocks conduct business in a language that is impossible for outsiders to understand and interpret. (A sort of thieves’ cant, if you will.) Not only has this made it harder for the average person to understand the crisis, it’s made it harder for the media to cover the crisis, and it’s made it harder for anyone not already well versed in Wall Street – in other words, the people who got us into this mess – to sort through all the gibberish in order to get us out of this mess.

I wish that we could claim moral superiority in our own tech world, but I don’t think we can.  Too often, silos persist in IT where protective individuals try to keep their own jobs secure by being the only person who can understand and interpret the data.  It’s the same kind of thing, and I’d say it’s “just as bad,” except that while it may be counter-productive, it hasn’t yet blown up an entire civilization’s economy.

Yet.

In the meantime, here’s some handy links from Amazon:

· Blazer PT-4000 Pencil Butane Torch.

· Speeday Series 60” Pitchfork

And for the kids:

· Angry Mob Playset