The most basic and alarming parallel is the creation of asset bubbles, in which the
purveyors of securities use very high leverage; the securities are sold to the public or to
specialized funds with underlying collateral of uncertain value; and financial middlemen
extract exorbitant returns at the expense of the real economy. This was the essence of the
abuse of public utilities stock pyramids in the 1920s, where multi-layered holding
companies allowed securities to be watered down, to the point where the real collateral
was worth just a few cents on the dollar, and returns were diverted from operating
companies and ratepayers. This only became exposed when the bubble burst. As Warren
Buffett famously put it, you never know who is swimming naked until the tide goes out.