Borrowing to Make Poor Investments

There is a certain simplicity to this whole mess which is amusing. It begins with the words sub and prime.

Prime:
3. of the highest eminence or rank: the prime authority on Chaucer.

4. of the greatest commercial value: prime building lots.

5. first-rate: This ale is prime!

6. (of meat, esp. of beef) noting or pertaining to the first grade or best quality: prime ribs of beef.

Now even without an economics degree one, at least intuitively, looks for investments of ‘great commercial value’, a ‘first rate’ investment, or an investment of the ‘best quality’.

Sub:
a prefix occurring originally in loanwords from Latin (subtract; subvert; subsidy); on this model, freely attached to elements of any origin and used with the meaning “under,” “below,” “beneath” (subalpine; substratum), “slightly,” “imperfectly,” “nearly” (subcolumnar; subtropical), “secondary,” “subordinate” (subcommittee; subplot).

It appears investors focused on the prime and ignored the sub. Everybody is wondering how to value these SUB-prime assets. Well the answer is pretty simple. They aren’t of great value. There value is below, imperfect, slight, secondary… And thanks to computational wizardry almost every major financial institution, and following the chain a few more steps, every pensioner/anybody with savings (there aren’t actually very many in the states), is exposed.

The other simplicity is debt. Household debt was around 50% in the 1980s and rose to 100% in 2006. Whence does this level of borrowing lead? 100% debt?
Adam Smith, Keynes, Karl Marx, Milton Friedman… All pre-eminent economists never managed to articulate one of the most fundamental economic laws as gracefully as a lowly writer of ‘fiction’ Mr. Charles Dickens:

"Annual income twenty pounds, annual expenditure nineteen nineteen six, result: happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result: misery."