FANTASY BASEBALL AND THE FINANCIAL CRISIS.

FANTASY BASEBALL AND THE FINANCIAL CRISIS. The Baseball Musings blog linked to this article by Les Leopold with the provocative headline “Play Ball! How Rotisserie League Baseball Crashed the World Economy.” (I take a special interest in Rotisserie league baseball because I am an original member of the second oldest Rotisserie league.) The article is based on the insight that a synthetic derivative is like a Rotisserie league baseball team. In Rotisserie league baseball, I pick a team of, for example, 25 players, and win if their performance is better than the teams picked by others. Kids, I have posted several times about the toxic assets which were constructed by investment banks which consisted of slices of large numbers of mortgages. I have also posted about how investment banks created multiple synthetic bonds which were based on how slices of mortgages did even if I, as the synthetic bond owner, did not have any ownership interest in the underlying mortgages. As Leopold puts it: “Imagine that each synthetic security is the same thing as a fantasy baseball team. The synthetic financial security, like your team, goes up or down in value depending on how the underlying assets perform, be they subprime loans or major league baseball players.” Leopold compares what happened when the real estate market went down to what would happen to a fantasy baseball team if the players went on strike.