DAVID KESTENBAUM, HOST:
Hey, it's David here. We pulled today's show from deep in our archives. This one is from 2009. It is this lovely parable that always reminds me of the whole financial crisis - you know, where someone creates fancy financial products that are too good to be true, but everybody still goes nuts for them - only this story, it takes place in a third-grade lunchroom.
(SOUNDBITE OF MUSIC)
UNIDENTIFIED WOMAN: Let's take a moment to thank and share a message from our sponsor, Herman Miller. Herman Miller helps organizations of all sizes create great places to work - places that support your employees, your customers and your business goals. And no matter what your budget, Herman Miller has programs and tools in place to make this kind of workplace accessible. Create an office that can grow with you and help your people do their best work. Learn more at hermanmiller.com/npr.
KESTENBAUM: All right, here is the show. You're going to hear a bunch of people - me, Alex Blumberg, Adam Davidson, and Starlee Kine - but the person telling this story, the person that this happened to, is the great Josh Bearman. Josh is a This American Life contributor - also wrote the magazine story that inspired the movie "Argo." This story he's going to tell takes place when Josh was in third grade. These are the details as he remembers them. This was in Minneapolis in the early 1980s, which he says was a very exciting time to be in third grade.
JOSHUAH BEARMAN: Well, this was, like, sort of around the time when the full weight of modern science and technology was being applied to lunch snacks.
BEARMAN: You know, so Fruit Roll-Ups had just hit the scene.
BEARMAN: You know, Capri Suns...
KESTENBAUM: Oh yeah, putting juice in a little - something other than a can.
ALEX BLUMBERG: Exactly, exactly. All right, so let me just set the scene here. So Josh had just moved to this new school, and it was a very fancy school where all the kids had these very snacks that he's describing - these technologically-juiced snacks. There were Chewy granola bars, Rice Krispie Treats. But Josh himself came from sort of a different home. His home was very Spartan. And his lunches were sort of hobo lunches by comparison.
BLUMBERG: In fact, he swore to me that his father one time sent him to school with a tin of sardines in his lunch bag.
KESTENBAUM: And no way to open them.
BLUMBERG: And no way to - exactly. But his standard lunch was a PB and J, juice, and for his treat, his father would give him a box of raisins.
BEARMAN: I sort of was obviously jealous of everybody's wonderful lunch snacks. But also, like sort of to add insult to injury, they would - it was kind of all flaunted inadvertently in front of me because everybody in the beginning of lunch would - they would start trading all of their wonderful lunch snacks with each other. And they'd lay it out on this big table and sort everything out. And it was this incredible - like a Roman feast of processed forbidden delights that I, like, could watch from afar, you know. And it was a sort of me looking at - each thing that would come out of the lunch bag was more wonderful than the next.
BLUMBERG: And people were trading them? They were like - what was the - there was exchange going on?
BEARMAN: Yeah, the purpose of the table and laying everything out like the Roman feast was for the marketplace. And everybody would start trading. And, you know, 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 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 jelly sandwich had no currency value, like, in this market whatsoever.
BLUMBERG: What about your box of raisins? Could you have gotten anything?
BEARMAN: No, I don't think the raisins really went very far. (Laughter). I mean, the raisin's a constant, sort of source of frustration for me because I complained to my dad about the raisins and my dad would say, well, just, you know, show them that if you take the raisins out, you can blow through it and it's a whistle, and it's 2400 hertz. He's a physicist. And so, you know, depending on how many raisins are still in the box, it'll change the tone and, like, you can demonstrate Bessel functions with, like, a cup of water. And I would be like - as if this was going to amaze my classmates, the physical properties of the raisin whistle box.
ADAM DAVIDSON: Right. But getting to the language of economics, this was a non-scarce good. It had no tradable value.
STARLEE KINE: But is a Nutter Butter...
DAVIDSON: An 8-year-old never has trouble getting a hand on a box of raisins.
BEARMAN: What does not grow on trees is Granola Dipps. That needs to be - that's in short supply in the lunch room.
DAVIDSON: OK, so you are in a scarcity position. You are in a crisis. There's abundance all around you, but you have nothing tradable - nothing that can get you access to this abundance.
BEARMAN: Right, so I had to figure out something to do. And I did. I figured out a plan which was - I lied, basically. I've told that I sort of came up with a false business prospectus (laughter).
BEARMAN: Which was I told them that my mother is this incredible baker. She's a baking expert. And so - and she always bakes this cake for everybody, all my classmates, at the end of the year. And the cake is so delicious, and it's the best cake you'll ever have. And can you just imagine it now? It's going to be the greatest cake ever. And I sort of got them all excited about this coming cake. It's coming. And 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 - a stake, you know - well, on a share of this future coming cake.
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: There's a couple of things I should mention. First, Josh's mother was a horrible baker. (Laughter) There was no way she was actually going to bake a cake for the class. And two, in his memory, this cake future thing, it caught on big.
BEARMAN: Yeah, people would come and say, you know - it was like a trading floor. It was a lunchroom. The bell would ring and all of a sudden, people would bring out their stuff and sort of want to see what it was worth. I mean, to answer your question succinctly, I would just determine at that point what the deposit was going to be worth in future cake shares.
BEARMAN: And so people would line up and they would - and I would sort of - to keep up appearances, I was recording all of these sort of transactions in my Trapper Keeper to make it look like there was - there might...
DAVIDSON: ...It's like Bernie Madoff falsifying account statements.
DAVIDSON: You were falsifying...
BEARMAN: ...Yeah, exactly...
KESTENBAUM: ...Wait, people would line up - so all your classmates would line up with their, like, Fruit Roll-Ups in hand, and then they would come to you and say - what?
BEARMAN: Yeah, they would come and say - well, I don't even know if, like, any words were necessary. They would just, like, put it on the table and I'd say oh OK, Fruit Roll-Ups, half a slice. Watermelon Fruit Roll-Ups, that's no slices. That's disgusting, I don't even want that.
BEARMAN: You know, granola - like, a Nutter Butter dipped in chocolate and rolled around in industrial marshmallows, that would be, like, a whole layer of the cake, right? And so people started - well, I mean, it sort of spread like wildfire. I mean, first few people got into it and everybody else said oh, we've got to get in on this cake deal. This is going to be great. And so soon enough, like, the ledger was growing, you know, day by day. And so I had sort of created this speculative bubble. Like, the whole other economy disappeared. Nobody was over there at the original table trying to trade. They wanted to take part in this glorious future.
KESTENBAUM: So they actually literally, like - literally, people stopped trading with each other and they were only in it for the cake?
BEARMAN: Well, there might - I mean - as I recall it, I controlled the lunch room.
BLUMBERG: (Laughter) Not only did he control the lunchroom, Dave, he had all the 20th century snack foods his heart could desire. And he would actually - he said he's kind of a hoarder, so he would, like, squirrel them away in, like, his locker and at home (laughter), and so he had all these, like - he would have this ever-growing pile of, like, Nutter Butters and Cheetos and stuff. And also he was no longer an outsider in this third grade lunchroom economy. So things were pretty good, but there was only one problem.
BEARMAN: So the cake was was growing and the ledger was growing, and nobody even questioned the ledger. And they, you know - that was - it was - people sort of set aside their - whatever doubts they might have had. And then at a certain point, I made the mistake, I think in retrospect, of allowing people, if they had a really good treat, to customize the specific piece of cake that they had - that they were trading their Cheetos or Nutter Butters for.
BEARMAN: And I think what happened was sort of the trading had been light and I sort of wanted to juice the market a little bit. And I offered new sort of add-on, know? (Laughter)
DAVIDSON: Like, I could have a corner slice or a rose - you know, a decorated rose or whatever...
BEARMAN: ...Yeah, exactly...
BEARMAN: And so from there on out - then the Trapper Keeper ledger started describing a cake where it sort of would be a piece of lemon meringue next to German chocolate, and then half a layer of red velvet and angel food, and chocolate mousse on top of it. So, I mean, it was just this insane fantasy cake.
KESTENBAUM: It sounds like kind of an awful cake in a way. I mean, having all those, (laughter) any one of those would be nice. But it really is also like you were putting together specialty deals for people and, like, it was really like you had your custom OTC, you know? had You had your bespoke derivative deal, and then you had your straight-ahead, you know, sort of, like, cake future.
BEARMAN: Yeah, exactly. I was offering - listen, I was giving the people what they wanted. They wanted - they liked the idea of this cake. And I think they liked the very idea of it, and also at a certain point when I started to maybe have doubts that oh yeah, this cake is 1,000 feet tall, (laughter) that they just realized they were too far in. Like, they were into this cake for 40 bags of Cheetos and 20 Nutter Butters. (Laughter) And so they couldn't just walk away from all of their investments, you know? They sort of figured well, let's just keep putting, you know, Cheetos into this thing and see what happens.
KESTENBAUM: It sort of - the scheme went on actually longer than it probably should have because that dream - even though it was sort of like this cake that was, like, you know, 500 layers thick, and, you know, it had - made up of all these different things - the dream it promised was just hard for anybody to really let go of.
BEARMAN: Even at a certain point I believed in the cake, even though I knew I had made it up, you know, 'cause 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. And then what happened was, eventually, another guy in my class, this kid named Spencer, he had been kind of the king of the original lunchroom economy because he always had three, four pretty good snacks in his lunch. So he could trade up. And he could hoard. And he always sort of had the best position on the table. So he had done quite well, you know, and now he's left out.
BLUMBERG: And you come, this flimflam man.
BEARMAN: Yeah, I'm the flimflam guy - like the shyster hedge fund cake derivatives future guy. And it's kind of glamorous to hang out over there. And Mr. Fundamentals, Spencer, is over there saying, like, hey, the numbers don't add up on this thing.
DAVIDSON: Right. He's in the spot market. And he's like, I've been looking at his books. There's no way this cake could exist.
BEARMAN: Well, he was the first one who did a back-of-the-envelope calculation and demonstrated that this cake would defy the laws of physics.
BLUMBERG: And so this is sort of where Josh's third-grade financial confidence game takes on the exact contours of many of our current financial scandals. Like, basically, there's this group. They get taken in by this promise, this glorious promise. And then there's this skeptic, this sort of voice who's saying, like, this doesn't add up. And then these two viewpoints are sort of at odds for a while. And one tries to ignore the other, but eventually the truth side sort of wins out.
BEARMAN: So Spencer, you know, he doesn't relent. He still is telling people - and, you know, he does sort of have the numbers on his side. And he was always good at math, you know. He's on the chess team. He's a rationalist. Everybody, you know, respects Spencer. And so they start listening. And eventually, you know, just as sort of easily the confidence was built, it eroded. And a threshold was crossed. And, you know, you could kind of see it coming, but the market still continued. And then there was, one day to the next, enough people didn't believe in the cake that, you know, nobody believed in the cake. And the market just disappeared. And people realized that this ledger was a sham. And, you know, the Cheetos were never coming back. They had lost all their Nutter Butter investments. The cake wasn't going to appear.
BLUMBERG: And actually, Josh told us that as in current financial scandals, the authorities - who, in this case, were the school administration - looked the other way while the whole crisis was unfolding. But once the truth came out, they felt compelled to act. And their punishment was calling Josh's parents.
BEARMAN: I got this whole lecture, and - which was some sort of combination of biblical parables about, like, the Tower of Babel or - I don't remember exactly what it was. And I sort of had to learn a lesson. I definitely remember that. I remember getting a talking-to about the cake. And so I was chastened by my parents. I don't remember with my fellow classmates really what happened. I mean, I just went back to the same old - I was on the outside. I was blowing a sad tune on my raisin whistle box, you know, banging my sardine can against a rock, trying to get my lunch - you know, trying to eat my lunch. And it was just, like, back to normal.
BLUMBERG: Which is just, like, the saddest little sort of image of him, you know.
DAVIDSON: He did avoid jail time.
BLUMBERG: He did avoid jail time. Right, so that's true. One of my favorite things about that story is, like, sort of trying to imagine, like, if Josh were to actually go to his mother and be like...
KESTENBAUM: ...We need to make a cake.
BLUMBERG: Exactly. And it needs to be 600 layers.
KESTENBAUM: Send us email. We are firstname.lastname@example.org. Or you can tweet us at PlanetMoney. And if you're looking for another show to try, check out NPR's new podcast, the Hidden Brain. It's about social science you can apply every day. Find the Hidden Brain podcast at npr.org/podcast, and on the excellent NPR One app. I'm David Kestenbaum. Thanks for listening.
NPR transcripts are created on a rush deadline by Verb8tm, Inc., an NPR contractor, and produced using a proprietary transcription process developed with NPR. This text may not be in its final form and may be updated or revised in the future. Accuracy and availability may vary. The authoritative record of NPR’s programming is the audio record.