How could anyone afford them?  Well, it turns out, they couldn’t.  That emperor, like so many others, didn’t have any clothes.  But the ‘sub-prime’ mortgage mess, which has spread to a credit mess may have already metastasized throughout the banking system.  (See a previous post for a related dynamic in quant hedge funds last August.)

Paul Krugman writes in the New York Times, “What we are witnessing,” says Bill Gross of the bond manager Pimco, “is essentially the breakdown of our modern-day banking system, a complex of leveraged lending so hard to understand that Federal Reserve Chairman Ben Bernanke required a face-to-face refresher course from hedge fund managers in mid-August.”

To reinterate: Bill Gross says that our banking system is breaking down and it’s so complicated that no one, including Ben Bernanke understands it.