Saturday, 7 April 2012

How to understand the crisis: only a matter of donkeys

From: How did that cork get in your bottle?
(photo by: J. Quirós)
A prestigious financial consultant was asked to explain the crisis so that it would be easily understood, so that ordinary people could get a grip on the causes of this disaster. This is the way he did that: A man went to a hamlet he had never been to before and offered its inhabitants €100 for each donkey they could sell him. A good number of the population sold him their donkeys. Next day, he went back and offered a better price, €150. Lots of the remainder sold him their donkeys. Next time, he offered €300 for a donkey. The entire population now, had sold him their donkeys. Seeing there were no more animals to buy, he offered €500, telling the inhabitants that he would return the following week. PLEASE BE AWARE THAT ITEMS SUCH AS THIS MAY BE SUBJECT TO SUBSCRIPTION IN THE FUTURE but you can make a donation NOW, too! Please click here for more information on how to help us continue. (Thisitem took 54 minutes to produce.)>>>
The following day, he sent his assistant with the donkeys he had already bought, and told him to offer them at €400 per head. Knowing that they would be able to sell them next week, the villagers paid out the €400 for each of all the donkeys. Those who didn't have the money, borrowed it. In fact, between them all they bought all the donkeys in the district.

As might be expected, neither the assistant nor his boss ever appeared again.

Result: The village was full of donkeys and up their ears in debt. This is as far as the consultant's story went. Let's see hat happened next.

Those who had borrowed money were unable to pay it back.

Those who had lent money complained to the Town Hall that if they didn't get their money back, they would be ruined: they wouldn't be able to lend any more money and the whole village would be bankrupt, too.

To prevent the money lenders from ruin, the Mayor, instead of giving money to the people to pay off their loans, gave it to the lenders. These, however, having got back at least the larger part of their money, refused to cancel the villagers' debts, so the people were still in debt to them.

By this time, the Mayor had spent all the Council's money, so the Council was now deeply in debt, too. But the Mayor asks his neighbouring Councils for loans, but they refused on the grounds that as the Council was bankrupt, they would never be able to get their money back.

Result: The man who became known as 'the donkey dealer' became even richer when he did the same in other villages.

The money lenders, their problems resolved and with a whole lot of people still owing them money, who were being charged higher interest rates -all of which would figure as assets on their books-, nevertheless were taking back the devalued donkeys that would never cover the loans in any case.

The final result?
To sort it all out, the Mayor made much of the town hall employees redundant and lowered pensions for the elderly. He tried to go after the donkey dealer with decrees that were undelivered because he had gone to other places that would enhance his already considerable purse.

A Council meeting decided then to put a tax on the villagers' only possessions: the donkeys. Not long after, the only food available in the village was donkey meat.

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