Fee Simplistic is a regular post by Martin Tessler, whom after 30 years of commercial fee appraiser-related experience, gets to the bottom of real issues by seeing the both the trees and the forest. He has never been accused of being a man of few words and his commentary can’t be inspired on a specific day of the week. In the first of a series, Marty looks at what’s cooking in sub-prime and observes that everyone is now washing their hands after the infection has spread. …Jonathan Miller

Sharing an elevator, a civilian neighbor of mine (“civilian”: neither in real estate, law, nor finance) reading the morning paper asked me if I could explain to him in non-technical terms what the sub-prime mess was all about and how it came to infect the entire economy. As this was a question that could not readily be answered by arrival in the lobby I told him that I would have to give it some thought but that I would definitely get back to him with an explanation.

I called him a few days later and asked him if he remembered the story of Typhoid Mary. He recalled that she was the cook who harbored the typhoid bacteria but did not outwardly manifest the disease back in the early 1900’s. He recalled how she cooked for a Long Island banker’s family and how several family members came down with typhoid and that it was quite a number of months before the illness was traced to her and how she was later isolated but continued cooking and spreading the disease among those with whom she came in contact.

“So where does Typhoid Mary come into this”, he asked? I told him to imagine that she was a gourmet cook that was able to concoct delicious meals that we’ll call “sub-prime” and which revolved around highly questionable combinations of ingredients that tasted great to the investment banking community on Wall Street. The bankers said that if it tasted this good they could sell it to the public and make billions notwithstanding the toxic ingredients that would create problems later on.

So the investment bankers set her up in business and she got rave reviews for her sub-prime meals which are so low in price that they not only kept coming back for more but word spread internationally and they opened franchise operations all over the world and everyone could not get enough of sub-prime. However, nobody paid attention to the fine print in the back of the menu stating that meal prices are going to rise but “not-to-worry” because the people who had already dined will gladly give up their place to those who have not sampled the cuisine and they will go on to newer sub-prime establishments being built by the investment bankers who are now launching a haute cuisine line of restaurants called “Derivatives”. “Derivatives” traced its origins back to Typhoid Mary’s ingredients but its higher order of culinary evolution took basic ingredients and strained, extracted and refined them further to the point where there was only a minute trace of the flavor that people thought they were savoring but had no idea of what they were eating and really did not care.

“Derivatives” was so popular in the investment banking community that they spun off boutiques for even higher haute cuisine dining called “SIV’s”, “CDO’s”, “ALT-A’s”, “Tranches”, “RMBS’s” and “CMBS’s”. Wall Streeters claimed they discovered the new El Dorado and doled out billions in bonuses to their exclusive fraternity, the Investment Bankers. Unbeknownst to the dining public, however, was the fact that all of these new culinary establishments had one thing in common, the cooking and recipes all traced back to Typhoid Mary and her dormant but lethal bacillus, “ILLIQUIDUS-ILLSOLVENTUS” from the Latin “to go broke”. Also, the scientific community was unaware of the fact that this particular bacterial strain acted in a cyclical manner and took several years to mature before striking its lethal blow.

One day, after several thousand “sub-primes” were operating around the world a 911 call went out from one that a customer was experiencing severe abdominal cramps and shooting pains. The diagnosis came back that it was nothing to worry about as the diner was merely experiencing an upset stomach but at the same time other diners at other restaurants were experiencing the same symptoms all over the globe. Frantic calls were sent to the Wall Street headquarters to find out how to treat the outbreak but word came back that each diner assumed their own risk and, besides, all the funds that would have been held in reserve for 911 emergencies were already disbursed in spent bonuses.

Calls for help to the Communicable Disease Center in Washington were met with skepticism by the Wall Streeters who said it would be better not to have government intervention as the body will build its own defenses against the outbreak. As of this writing several franchise operations have closed their doors due to the outbreak and there is some discussion of applying massive dosages of steroids and human greed hormone. The doctors however are uncertain as to whether the disease is indeed bacterial or viral and treatment is under discussion. “We have seen outbreaks like this before such as the S&L crisis, the high tech crisis and we will deal with it-and let’s not forget the tulip crisis too”, said a member of the Administration.

Stay tuned for further developments.