LINDA WERTHEIMER, host:
And now we go back in history to look at another financial scandal. It's one that's safe to say almost no one has heard of - no one aside from a handful of third graders in Minneapolis in 1980. This scandal didn't involve money. It was about snack food, and it was unveiled recently to Alex Blumberg of NPR's Planet Money team.
ALEX BLUMBERG: Today, Josh Bearman has gone straight. He's a successful writer living in Los Angeles. But he was briefly a criminal mastermind. This is in third grade, when he transferred to a new school, a fancy school where all the kids had fancy snacks - chewy granola bars, Rice Krispie treats.
Josh himself grew up in a Spartan home - no sugar. And to make matters worse at this new school, kids wouldn't just eat their lunches, they'd flaunt them, because every day, a brisk trade in lunch snacks would take place. Kids would pile all their best items onto one main table and start bartering.
Mr. JOSH BEARMAN (Writer): People would say, oh, well listen. I've just had my fill of Rice Krispie treats for two weeks in a row, straight. You know, why don't I have some of your Fruit Roll-Ups? And so they would trade it all around. And it was actually, it was a pretty efficient system. You know, everybody got what they wanted, and it kind of all worked out for them. You know, it didn't work out for me at all, because I was totally outside of this economy altogether. Because my peanut butter and jelly sandwich had no currency value, like, in this market whatsoever.
BLUMBERG: And so, Josh came up with a plan, a scheme, a lie. He told his classmates that every year on the last day of class, his mother would bake a cake - a huge cake, the most delicious cake you've ever tasted.
Mr. BEARMAN: So what I said was, listen, that's going to be a great day. But in the meantime, I can offer you this special opportunity. And what we can do is, if, say, you give me those Cheetos now, today, you can lay a claim on, well, on a share of this future coming cake.
(Soundbite of laughter)
Mr. BEARMAN: You know, so, you can have a deposit. You know, you can have a piece of this cake when it comes. And so, basically, I developed this sort of derivative lunchroom market for delicious cake futures.
BLUMBERG: Josh's idea took hold and spread, totally disrupting the old lunchroom economy. Josh's classmates would line up in front of him at a new table now. One Fruit Roll-Up: one slice of cake. One chewy granola bar: two slices.
To keep up appearances, Josh would dutifully record the transactions in his Trapper Keeper. He'd even customize them. If a fellow classmate had a snack Josh really wanted, something with industrial marshmallows for example, he'd say they could specially request what kind of cake they wanted - red velvet, chocolate, angel food.
Mr. BEARMAN: Even at a certain point, I believed in the cake, even though I know I had made it up, you know, because I just imagined the hero's welcome I was going to receive when they wheeled this, like, Technicolor, baked colossus, like, into the schoolyard, and how incredible it was going to be. And so there was this mutually reinforcing psychology. We all just bought into the idea of this cake.
BLUMBERG: Well, not all. There was this one kid named Spencer. He'd been the king of the old lunchroom economy because of all the delicious treats he regularly pulled out of his lunch box every day. And he was suspicious of Josh and that ever-expanding ledger in his Trapper Keeper - suspicious, and good at math.
Mr. BEARMAN: Mr. Fundamentals Spencer is over there saying, like, hey, the numbers don't add up.
BLUMBERG: And here, Josh's third-grade financial confidence game took on the contours of many of our current financial scandals. There's the group, taken in by the promise of a glorious future, and then there's the skeptic, saying this all doesn't add up.
These two viewpoints tussle for a while, but eventually, the truth wins out -the dynamics as true today as they were at a third-grade lunch table in 1980.
Mr. BEARMAN: Listen, I was giving the people what they wanted. They wanted -they liked the idea of this cake. And also, they just realized they were too far in. Like, they were into this cake for 40 bags of Cheetos and 20 Nutter Butters.
(Soundbite of laughter)
Mr. BEARMAN: And so they couldn't just walk away from all their investment.
BLUMBERG: Eventually, the regulator - in this case, the school administration, who had previously turned a blind eye on the whole fraudulent enterprise - got involved. Long after, it must be said, anything could be done to help the victims.
Josh was punished, sure, but as he says, those Cheetos and Nutter Butters, they were never coming back.
For NPR News, I'm Alex Blumberg.
WERTHEIMER: Alex is a producer for Chicago Public Radio's THIS AMERICAN LIFE, and he is a member of our Planet Money team. You can hear his Podcast and read his blog at npr.org/money.