Friday, October 24, 2008

Understanding the Economic Crises, Perhaps

Someone sent this to me the other day:

Once upon a time in a village, a man appeared and announced to the villagers that he would buy monkeys for $10 each. The villagers seeing that there were many monkeys around, went out to the forest, and started catching them.

The man bought thousands at $10 and as the supply started to diminish, the villagers stopped their effort. He then announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and people started going back to their farms. The offer increased to $25 each and the supply of monkeys became so little that it was an effort to even see a monkey, let alone catch it!

The man then announced that he had to go to the city on business and when he returned, he would buy monkeys for $50 each.

He left his assistant in charge and departed for the city.

In the absence of the man, the assistant told the villagers, "Look at all these monkeys the man has collected and put in the big cage. I will sell them to you at $35 each and when the man returns from the city, you can sell them to him for $50 each."

The villagers rounded up all their savings and bought all the monkeys.

They never saw the man or his assistant again, only monkeys everywhere!

Now you have a better understanding of how the stock market works!

Actually, if you're willing to spend a few hours time reading something serious that tries to understand what's going on, the Economist has a special report for you.

1 comment:

Anonymous said...


The simple answer is GREED

Greed is having the time to think about "investing" so that what you have can make more money "while you sleep."

Sure, governments can fall when a depression/recession hits. BUT NOT IN AMERICA!

Winston Churchill was in New York City on October 29, 1929. "Black Monday."

Later, he would write an excellent piece for publication in England. And, since it's Winston Churchill's writings, you can still read his articles.

He said that the American system allows GREED. Anyone in AMerica was able to invest! It got to be such a game (similar to the one we have now with housing loans to people who can't ever pay the mortgages back) ... Was, in those days, called MARGIN CALLS.

In August of 1929, Joseph Kennedy was getting his shoes shined; when the shoe shine boy was giving him stock tips. He couldn't run to the office fast enough! He sold all his stock positions. (Meaning? He made money!) He did what was FRUGAL. He got the hell out of the expanding bubble. So when it burst? He had cash.

And, the shoe shine boy, and everyone else who were buying on margin, lost just about everything.

Economies expand when home builders and developers BUILD. But you need people to buy.

In the early 1950's, those lucky enough to return from Europe, and the Pacific, were starting young families. And, the government made it possible for veterans not only to go to college. But to buy homes!

The American economy grew by leaps and bounds! Eisenhower was president. And, while the GOP talk a good game of "limiting government" ... each and every republican president, starting with Eisenhower, only expanded it. (While to deflect attention, appealed to the religious nutters ... by saying "life begins at conception." Women get pregnant, and should not have access to abortion.

You're still waiting for the results to come in on McCain. But he's already promised he'd select Supreme Court justices that would treat Roe as "bad law." And, to help women? McCain promises accelerated help putting babies up for adoption.

You could learn from history.

It was those adoption agencies that put women at risk when they went to get illegal abortions. In back alleys. By definition, you're not going to a hospital. Because you can't set up a hospital "on the run."

But abortions used to be a big secret.

Heck, getting a cancer diagnosis where the doctor would actually use the "BIG C WORD" ... shows you the way those secrets worked.

And, the "closet" worked, too.

If you think about it, banks actually make money lending money. You pay them interest. So they earn money each month. And, if it's for a mortgage, they actually hold the property until you pay off the last dime.

If property values grow in equity, that the poor slob that loses his property, gives the bank something more valuable than these monthly morgage payments.

And, yet? Things went south.

They went south because the lending got so out of control that the debtors couldn't repay the loans. And, whole developments ... whole communities ... became ghost towns. Equity? Went down the toilet.


When you come down to it, it should never have been a "birth right" that you'd live in a nice home. Even if you couldn't afford it! Bush, in 2002, promised EVERYBODY they'd get to live in nice homes.

So, the usual bar that exists against lousy lending habits, were brushed aside by Congress. Who'd sue any bank that dared "red line" a nieghborhood. Or claim a borrower wasn't worthy.

Yes, once there were credit ratings. This is what got tossed. And, for a time? You have no idea how profits grew! On paper.

Paper, of course, means the profits aren't there to spend. You either cash out. Or you watch equity drop. When, reality catches up to GREED.

Back to Winston Churchill. He pointed to the English parliamentary system. And, said that if the crash had happened in London, the government would be tossed out.

That's not how our Contitution is written. We have laws that predict elections. Even when this country is at war.

Does that mean Dubya hasn't been a failure? Oh, boy. He was in the White House, pushing the Saudi agenda. And, how often do you hear about it? (It was a failure, by the way.) Heck, if you just go to Irak, you'd see Maliki hating Bush's guts. Do you know why? Well, even without reports in the news, you know that the shi'ites hate the sunnis.

And, you just can't "spread democracy" ... any better than you can "spread GREED."

Meaning that bubbles POP.

You want to tell the tale of monkeys? Why not flowers? TULIPS was the "first crack of the bubble" and it happened in Holland, hundreds of years ago.

Imagine people getting all enthralled with tulips?

Well, this time? The economic engine that's been primed for at least a dozen years ... was the boost given to the economy ... based on an American habit of moving about ... from home to home. every five to seven years!

This is what tempted those workers, who really slaved at jobs. And, suddenly found CHEAP GAS PRICES, and homes away from their city jobs. AFFORDABLE!

Just like Levitt Town After WW2.

First? You need to interest an amazing assortment of people.

And, then? Instead of being focussed on GREED; be more like Joseph Kennedy. When he saw all the riff-raff arriving on Wall Street to get rich? He sold all his stocks at top dollar.

And, he waited.

Just in case you don't think some people, ahead, can get rich, you still don't know how "betting on markets" works. (Let alone commodities, since everybody has to eat.)

Oh, and yes. This affects the politicians. Most of them needed the money given to their campaigns. We no longer call this graft.

But it's the same.

And, it will take a long time to fix this mess.

Does it pay to know a little math before you invest? You bet.

But do you know who really got hurt? Turns out Americans went to the Chinese workers; and peasants. Because those people still save!

When Bush came out with the trillion dollars, it was for these Chinese! IF we didn't do it? We'd never be able to borrow a single dime.

But it's been downhill, ever since.

Where AMericans got caught? Their equity in their homes can fall below what they owe in mortgages. And, worse! The 401K plans have bought the dreck that was produced by AIG. And, Lehmann Bros. And, the others. Who didn't care who they suckered.

Are those losses real?

What can I tell ya? IT's written on paper.

Some people think things written on paper are holy texts. And, in economics? You can be fooled.