How to explain what's happened on Wall Street to my third grader

Here's what happened, son.

First, people like me took money we earned and we put into a bank. Remember this past summer when we took the money you made selling cookies and lemonade and put it in to your savings account? We put our money in the bank because we wanted our money to be safe. In other words, we didn't want a bad person to take it from us. The bank took our money and gave it to another bank. You see banks need even safer places to put the money we give them and there's nothing safer than a bigger bank.

These big banks then took our money and gave it to some really smart people, many of whom are trustworthy, thoughtful folks. A good number of them, though, are not. And that's where things have gone terribly wrong.

You see, son, the really smart people -- many of them in a city far from here -- decided that if they took our money and gave it to their friends to use as they wished, we wouldn't mind. They were wrong. They needed to tell us what they were doing with our money. They didn't. Our government, which is elected by all of us to watch our money, among other things, was supposed to be keeping an eye on things. They didn't do a very good job and so we need to elect new leaders who can keep an eye on our money.

The bad bank people were hiding their behavior from the government and were using our money to gamble and place bets. What has made the current situation even worse is that far too many people were gambling with money that was technically not there's. You could argue that the money was stolen and being used in ways that your dad is, frankly, to simple to understand fully. You'll need to get a little older to understand human psychology and economics before you can begin to appreciate what occurred here.

I can tell you this, though, when you bet with someone else's money and lose that money, you have to pay it back. When you are already in debt to other people, it makes it VERY hard to pay back the money you borrowed. It's like drowning in a swimming pool. The more you struggle, the more tired you become and the less strength you have to get to safety.

What's the lesson here? That's hard to say. I would not urge you to stop putting money in your bank account. A bank is the safest place for your savings. However, I do think you need to ask questions about where your money goes when you put it in your bank. Remember, banks put money in other banks. You want to know who those banks are and what they plan to do with your money. It's a fair question. Ultimately, the more curious you are, the better. Asking questions forces people to answer them. And as they answer them you can decide whether they are lying or telling the truth.

It's a universal problem: trying to decipher lies from truth. In the world in which you are growing, it's an important and critical skill to master. I don't think any of us can afford to stop asking questions anymore. My hope is that as you grow, you will learn to be curious about things that at first seem simple and mundane. Often, things that seem to be too good to be true are often just that and nothing more.