ECONOMICS -2015

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fnptfnpt Frets: 735
Taken from LinkedIn:

Mary is the proprietor of a bar in Dublin. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).

Word gets around about Mary’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Mary’s bar. Soon she has the largest sales volume for any bar in Dublin. By providing her customers freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary’s gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Mary’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral. At the bank’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINK BONDS, ALKIBONDS and PUKE BONDS. These securities are then bundled and traded on international security markets. Naive investors don’t really understand that the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb, and the securities soon become the hottest-selling items for some of the nation’s leading brokerage houses. One day, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Mary’s bar. He so informs Mary. Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKE BONDS drop in price by 90%. The collapsed bond asset value destroys the banks’ liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. The suppliers of Mary’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the various BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.

Now, do you understand economics in 2015?
____
"You don't know what you've got till the whole thing's gone. The days are dark and the road is long."
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Comments

  • lol or wis? lol or wis? :D
    The Assumptions - UAE party band for all your rock & soul desires
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  • lol or wis? lol or wis? :D
    The Assumptions - UAE party band for all your rock & soul desires
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  • RockerRocker Frets: 4942
    Absolutely correct my friend.
    Insanity: doing the same thing over and over again and expecting different results. [Albert Einstein]

    Nil Satis Nisi Optimum

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  • jpfampsjpfamps Frets: 2723
    Indeed.

    And nobody saw it coming (whose opinion mattered).
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  • TTonyTTony Frets: 27343
    So, which bar is doing the free drinks???
    Having trouble posting images here?  This might help.
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  • JohnPerryJohnPerry Frets: 1616
    fnpt said:

    Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.

    Now, do you understand economics in 2015?
    I like it. But I wonder what would have happened to the employed, middle-class non-drinkers if the cronies in Government had chosen to let the banks in which all their savings were invested go bust.

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  • fnptfnpt Frets: 735
    edited February 2015
    I think the answer lies somewhere in between. The governments should have bailed the banks to keep the system going but force them to implement reimbursement plans for the clients who lost their savings.
    ____
    "You don't know what you've got till the whole thing's gone. The days are dark and the road is long."
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  • TinLipTinLip Frets: 368
    so this is all the fault of the Irish?


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  • ICBMICBM Frets: 71954
    jpfamps said:
    Indeed.

    And nobody saw it coming (whose opinion mattered).
    Actually an old German bloke with a big white beard who currently resides in Highgate, north London, did see it coming and wrote quite a lot about it before all this started.

    Unfortunately he also wrote a lot of other socio-political stuff which was later hijacked and his name misused for it, so his economic insights have mostly been ignored since.

    "Take these three items, some WD-40, a vise grip, and a roll of duct tape. Any man worth his salt can fix almost any problem with this stuff alone." - Walt Kowalski

    "Just because I don't care, doesn't mean I don't understand." - Homer Simpson

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  • FretwiredFretwired Frets: 24601
    edited February 2015
    Similar to this .. the tax system in France..

    Once a week, 10 men go out for beer in Paris and the bill for all of them comes to 100 euros. If they paid their bill the way we all pay our taxes and claim state benefits, it would go something like this;

    The first four men (the poorest) would pay nothing. The fifth would pay 1 euro.
The sixth would pay 3 euros. The seventh would pay 7 euros.
The eighth would pay 12 euros.
The ninth would pay 18 euros.
And the tenth man (the richest) would pay 59 euros.

    So, that's what they decided to do. The 10 men drank in the bar every month and seemed quite happy with the arrangement until, one day, the owner caused them a little problem. "Since you are all such good customers," he said, "I'm going to reduce the cost of your weekly beer by 20 euros." Drinks for the 10 men would now cost just 80 euros.

    The group still wanted to pay their bill the way we pay our taxes. So the first four men were unaffected. They would still drink for free but what about the other six men: the paying customers? How could they divide the 20-euro windfall so that everyone would get his fair share? They realised that 20 euros divided by six is 3.33 euros, but if they subtracted that from everybody's share then not only would the first four men still be drinking for free but the fifth and sixth man would each end up being paid to drink his beer.

    So the bar owner suggested a different system. The fifth man, like the first four, now paid nothing.
The sixth man paid 2 euros instead of 3 euros.
The seventh paid 5 euros instead of 7 euros. The eighth paid 9 euros instead of 12 euros. The ninth paid 14 euros instead of 18 euros.
And the tenth man now paid 49 euros instead of 59 euros. Each of the last six was better off than before with the first four continuing to drink for free.

    But, once outside the bar, the men began to compare their savings. "I got only 1 euro out of the 20 euro saving," declared the sixth man, pointing to the tenth man, "but he got 10 euros!"

    "Yes, that's right," exclaimed the fifth man. "I saved only 1 euro too. It's unfair that he got 10 times more benefit than me!"

    "That's true!" shouted the seventh man. "Why should he get 10 euros back, when I got only 2 euros? The rich get all the breaks!"

    "Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

    So, the nine men surrounded the tenth and beat him up. Funnily enough, the next week the tenth man didn't show up for drinks (he was probably on the first Eurostar train to London), so the nine sat down and had their beers without him.

    But when it came to pay for their drinks, they discovered something important – they didn't have enough money between all of them to pay for even half the bill.


    Remember, it's easier to criticise than create!
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  • monquixotemonquixote Frets: 17485
    tFB Trader
    I get where the OP is coming from, but it misses the fundamental point of the financial crisis which is that the people managing risk failed to understand the interconnected nature of of the debts thinking that bundling them made them safer when it fact it made them riskier.
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  • TTony said:
    So, which bar is doing the free drinks???
    I heard it does great Greek food...
    The Assumptions - UAE party band for all your rock & soul desires
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  • fnptfnpt Frets: 735
    I get where the OP is coming from, but it misses the fundamental point of the financial crisis which is that the people managing risk failed to understand the interconnected nature of of the debts thinking that bundling them made them safer when it fact it made them riskier.
    I think that greed also contributed to the lack of good judgement in that particular aspect.
    ____
    "You don't know what you've got till the whole thing's gone. The days are dark and the road is long."
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  • Interesting.
    I'm quite clueless with all this stuff - does anyone know of any good sources of information, perhaps some books or websites that might educate me a bit with regards to economics/politics in general?
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  • ICBMICBM Frets: 71954
    edited February 2015
    I'm quite clueless with all this stuff - does anyone know of any good sources of information, perhaps some books or websites that might educate me a bit with regards to economics/politics in general?
    http://www.marxist.com/karl-marx-more-right-and-more-relevant-than-ever.htm

    :)


    (Don't dismiss Marx just because you know that "Marxism" was a name also used for the failed Communist system.)

    "Take these three items, some WD-40, a vise grip, and a roll of duct tape. Any man worth his salt can fix almost any problem with this stuff alone." - Walt Kowalski

    "Just because I don't care, doesn't mean I don't understand." - Homer Simpson

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  • @ICBM I read his Communist Party Manifesto several years ago. I quite agreed with his analysis of the plight of the proletarian wage-slave. I disagreed with his assertion that evolution from feudalism via capitalism to socialism/communism was "inevitable", and with his assertion that socialism/communism was the only answer to the problem.
    "Working" software has only unobserved bugs. (Parroty Error: Pieces of Nine! Pieces of Nine!)
    Seriously: If you value it, take/fetch it yourself
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  • ChrisMusicChrisMusic Frets: 1133
    edited February 2015
    Maybe we only have ourselves to blame...

    We have willingly shackled ourselves into the control of others whose biggest fear is freedom, which we so lightly trade for trinkets, oh a second car, and a couple of foreign holidays a year...    like sheep to the slaughter


    "There are thousands of people out there, leading lives of quiet, screaming desperation, who work long, hard hours, at jobs they hate, to enable them to buy things they don't need, to impress people they don't like."  Nigel Marsh

    BTW, I just posted an interesting TED Talk, not entirely unrelated...



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  • ICBMICBM Frets: 71954
    edited February 2015
    @ICBM I read his Communist Party Manifesto several years ago. I quite agreed with his analysis of the plight of the proletarian wage-slave. I disagreed with his assertion that evolution from feudalism via capitalism to socialism/communism was "inevitable", and with his assertion that socialism/communism was the only answer to the problem.
    Exactly. I'm only half joking by going about "Marx was right" :). He wasn't right about everything by a long way, but he was more right about some things than he has later been given credit for, after some of his more wrong ideas were borrowed - and even then in name only, really - by totalitarian communists and called "Marxism".

    I admit to not having read Das Capital in the original either, only in an analysis when I had to study business management - but I was struck by how inherently right some of his ideas and predictions actually were, compared to most modern economists. (One of the main exceptions being Keynes, who is worth reading too.)

    "Take these three items, some WD-40, a vise grip, and a roll of duct tape. Any man worth his salt can fix almost any problem with this stuff alone." - Walt Kowalski

    "Just because I don't care, doesn't mean I don't understand." - Homer Simpson

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