If I were an alcoholic, who is also a simple and dumb finance minister, our economic problems would be solved…
Before, I go on, I must dispel any notion that I am alcoholic as suggested on my side bar. It is meant to be a red herring. For those who know me, I am known for having a couple of ‘half lager and lime’ when in a pub, which I seldom go to anyway.
First, understand the crisis in bar terms:
The financial crisis explained in simple terms
Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers flood into Heidi’s bar.
Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit.
He sees no reason for undue concern since he has the debts of the alcoholics as collateral.
At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed.
Nevertheless, as their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar.
However they cannot pay back the debts.
Heidi cannot fulfill her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.
The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation.
Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.
The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties.
The funds required for this purpose are obtained by a tax levied against the non-drinkers.
Now I understand!
If that was too difficult, especially after a few beers, here is a simpler version:
Financial Knowledge for Dummies
In a small town on the South Coast of France, holiday season is in full swing, but it is raining so there is not too much business happening.
Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel.
He asks for a room and puts a Euro100 note on the reception counter, takes a key and goes to inspect the room located up the stairs on the third floor.
The hotel owner takes the banknote in a hurry and rushes to his meat supplier to whom he owes EU100.
The butcher takes the money and races to his supplier to pay his debt.
The wholesaler rushes to the farmer to pay EU100 for pigs he purchased some time ago.
The farmer triumphantly gives the EU100 note to a local prostitute who gave him her services on credit.
The prostitute goes quickly to the hotel, as she was owing the hotel for her hourly rooms used to entertain clients.
At that moment, the rich Russian is coming down to reception and informs the hotel owner that the proposed room is unsatisfactory and takes his EU100 back and departs.
There was no profit or income.
But everyone no longer has any debt and the small townspeople look optimistically towards their future.
Now that we understand how the economy works, what should be the solution? It is amazing how finance ministers all over the world seem to be helping the wrong people, instead of this:
Economic Bailout
Very, very interesting. Sounds so simple, but feasible. I wonder ... interesting reading!
This appeared in the St. Petersburg Times newspaper. The Business Section had asked readers all week for ideas on "How Would You Fix The Economy?" A man nailed it.
Dear Mr. President,
Patriotic retirement: There are about 40 million people over 50 years old in the work force - pay them $1 million apiece severance with the following stipulations:-
1) They leave their jobs. Forty million job openings - UNEMPLOYMENT FIXED
2) They buy New American cars. Forty million cars ordered - AUTO INDUSTRY FIXED
3) They either buy a house or pay off their mortgage - HOUSING CRISIS FIXED
Like I have been saying, they are bailing out the wrong people.
Signed
COULD THIS BE THE SOLUTION TO THE GLOBAL FINANCIAL CRISIS?
I wonder how Rais would treat this blog post!
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