Tuesday, October 21, 2008

Wall street explained

Wall Street explained

An older and much wiser cousin of mine recently explained the financial mess
this country and the world in general is presently facing. So, here is
how the old story goes:

Once upon a time in a little village somewhere maybe in Greece maybe
in some other part of the world lived a smart and maybe unscrupulous man.
This man, let’s call him Tom, announced to his fellow farmers and citizens
that he would buy monkeys for $10 a piece. The men in the village
(women were a little skeptical, they have after all been cleaning up
men’s monkey business ever since Adam) verged out in the forest
trapped as many monkeys as they found and brought them to Tom who
gladly bought them for the agreed upon price. However, as more and
more monkeys were caught the population of monkeys available began to
diminish and thefarmers stopped hunting them.

Tom now announced that he would be paying $20 per monkey and again the
men went out and more diligently now harvested some more of the poor
creatures. But now the available stock diminished even further.

Tom told his fellow citizens that he fully understood the shortage of
monkeys and he was now prepared to buy them for $25. Again the men went
out and caught the few remaining ones.

So, Tom now tells the men that he is painfully aware of the shortage and
he is prepared to pay $50 but he will be out of town for a few days and his
trusted partner will be handling all transactions.

The Partner calls a town meeting and tells the villagers: look, Tom has
filled the whole stable with monkeys. I will sell you the monkeys for $35
each and when Tom comes back you sell them back to him for $50. The men
did not think about it much, they collected their savings and their last
pennies(again against the women’s protestations, you see they know how to
sniffing out rotten fish) and bought the monkeys for $35 a piece.

Yes, you guessed it, they never saw Tom or his partner again.

Welcome to Wall Street.

Move aside Bernanke, here comes my cousin George the story teller.

1 comment:

Unknown said...

There is another story then.
There was a country where banks were giving loans to the unemployed and to people they new in advance they couldn't pay.
Then they created offshore companies. Say in Cayman Islands.
They were bundling those loans together, the term is they 'securitize' them and, through the wall street, they were selling these complex financial products to the rest of the world.
5 million of those loans went, as expected, bad.
5 million houses were foreclosed.
Total: about 5 trillion dollars.
Millions around the world lost their money.
Global economic recession.
Some would say that every calamity on this earth has started from this country.
True or false?