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MacroEconomics Explained: Credit Crunches and Recessions
Source: An email forward
Author: Unknown
THE CURRENT ECONOMIC CRISIS EXPLAINED...
{ IN SIMPLE THE DESI WAY }
Khaja Bhai is the proprietor of a Nehari Shop in Hyderabad .
Sales are low and, in order to increase them, he comes up with a plan to allow his customers to eat now and pay later.
He keeps track of the meals consumed on a ledger.
Word gets around and as a result increasing numbers of customers flock to Khaja Bhai’s Hotel.
Khaja Bhai's suppliers are delighted and are very willing to sell more and more raw materials for the meals he prepares.
Khaja Bhai shows them his ledger of receivables and they extend him credit.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and gives
Khaja Bhai a credit line and then increases his borrowing limit.
Taking advantage of his customers' freedom from immediate payment constraints, Khaja jacks up the prices of his Nehari, Kulche, Jabde, Paaya and Zabaan.
Customers don't mind as they are not required to pay on the spot anyway.
Sales volume increases massively, Banks and suppliers lend more;
Khaja Bhai opens more outlets.
He sees no reason for undue concern since he has the debts of the customers as collateral.
At the bank's corporate headquarters, expert bankers recognize Khaja's
customer loans as assets and transform these into BONDS.
These negotiable instruments are given exotic names such as
JABDA BOND,
PAAYA BOND,
ZABAAN BOND
&
KULCHA BOND.
These securities are then listed
on the Stock Exchange and
traded on markets worldwide.
No one really understands what the names mean and how the securities are guaranteed, but, nevertheless, is their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a credit risk manager of the bank decides that the time has come to demand payment of one of the debts incurred by Khaja Bhai.
Khaja in turn asks his clients to pay up.
One by one they refuse;
the clients cannot pay back the debts.
Khaja Bhai refuses to serve them any more.
The clients stop coming.
Khaja is really screwed now.
He cannot fulfill his loan obligations and therefore claims bankruptcy.
All Bonds drop in price by between 80 to 95%.
The suppliers of Khaja, having granted generous payment due dates and having invested in the securities are faced with similar problems.
The Meat Supplier defaults on payment to the Cattle Supplier and claims bankruptcy.
The Kulche Ka Aata supplier is taken over by a competitor;
Khaja lays off the cook and staff.
Bankruptcies soar, unemployment mushrooms.
The bank that lent the money in the first place is set to collapse.
It is later saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties with Khaja Bhai commuting back and forth in his Executive Jet and Mercedes 500SEL, brokering the deal.
The funds required to save the economic collapse are obtained by a tax levied on the common citizens,
Most Of Whom, Do Not Eat
No Nehari,
No Zabaan,
No Sirey,
No Paya...!!!
GOLMAAL KI JAI HO...!!!
HOPE YOU UNDERSTOOD ?
Ends..................... ........................................................
Related Links:
http://mayanmuse.blogspot.com/2008/11/sub-prime-crisis-global-meltdown-real.html
http://mayanmuse.blogspot.com/2008/04/sub-prime-factor.html
http://mayanmuse.blogspot.com/2008/11/icy-breeze-ajit-chaudri-irma-alumni.html
http://mayanmuse.blogspot.com/2008/11/global-meltdown-impact-on-indian.html
Author: Unknown
THE CURRENT ECONOMIC CRISIS EXPLAINED...
{ IN SIMPLE THE DESI WAY }
Khaja Bhai is the proprietor of a Nehari Shop in Hyderabad .
Sales are low and, in order to increase them, he comes up with a plan to allow his customers to eat now and pay later.
He keeps track of the meals consumed on a ledger.
Word gets around and as a result increasing numbers of customers flock to Khaja Bhai’s Hotel.
Khaja Bhai's suppliers are delighted and are very willing to sell more and more raw materials for the meals he prepares.
Khaja Bhai shows them his ledger of receivables and they extend him credit.
A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and gives
Khaja Bhai a credit line and then increases his borrowing limit.
Taking advantage of his customers' freedom from immediate payment constraints, Khaja jacks up the prices of his Nehari, Kulche, Jabde, Paaya and Zabaan.
Customers don't mind as they are not required to pay on the spot anyway.
Sales volume increases massively, Banks and suppliers lend more;
Khaja Bhai opens more outlets.
He sees no reason for undue concern since he has the debts of the customers as collateral.
At the bank's corporate headquarters, expert bankers recognize Khaja's
customer loans as assets and transform these into BONDS.
These negotiable instruments are given exotic names such as
JABDA BOND,
PAAYA BOND,
ZABAAN BOND
&
KULCHA BOND.
These securities are then listed
on the Stock Exchange and
traded on markets worldwide.
No one really understands what the names mean and how the securities are guaranteed, but, nevertheless, is their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a credit risk manager of the bank decides that the time has come to demand payment of one of the debts incurred by Khaja Bhai.
Khaja in turn asks his clients to pay up.
One by one they refuse;
the clients cannot pay back the debts.
Khaja Bhai refuses to serve them any more.
The clients stop coming.
Khaja is really screwed now.
He cannot fulfill his loan obligations and therefore claims bankruptcy.
All Bonds drop in price by between 80 to 95%.
The suppliers of Khaja, having granted generous payment due dates and having invested in the securities are faced with similar problems.
The Meat Supplier defaults on payment to the Cattle Supplier and claims bankruptcy.
The Kulche Ka Aata supplier is taken over by a competitor;
Khaja lays off the cook and staff.
Bankruptcies soar, unemployment mushrooms.
The bank that lent the money in the first place is set to collapse.
It is later saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties with Khaja Bhai commuting back and forth in his Executive Jet and Mercedes 500SEL, brokering the deal.
The funds required to save the economic collapse are obtained by a tax levied on the common citizens,
Most Of Whom, Do Not Eat
No Nehari,
No Zabaan,
No Sirey,
No Paya...!!!
GOLMAAL KI JAI HO...!!!
HOPE YOU UNDERSTOOD ?
Ends..................... ........................................................
Related Links:
http://mayanmuse.blogspot.com/2008/11/sub-prime-crisis-global-meltdown-real.html
http://mayanmuse.blogspot.com/2008/04/sub-prime-factor.html
http://mayanmuse.blogspot.com/2008/11/icy-breeze-ajit-chaudri-irma-alumni.html
http://mayanmuse.blogspot.com/2008/11/global-meltdown-impact-on-indian.html
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