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Comments on: The financial crisis explained in simple terms http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/ The Visible Hand in Economics Fri, 12 Aug 2022 20:21:02 +0000 hourly 1 https://wordpress.org/?v=6.9.4 By: LaSombra http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-18200 Thu, 19 Mar 2009 07:39:13 +0000 http://www.tvhe.co.nz/?p=2972#comment-18200 I love that explanation 🙂 As for Greg Ransom’s comment, I think it’s irrelevant. This article is titled “The Financial Crisis in Simple Terms”. I think it’s simple, yet accurate enough. Kudos to the author.

]]> By: How To Prepare Your Online Marketing Plan | Hobby Cash: Make Cash Blogging About the Things You Love http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-18169 Wed, 18 Mar 2009 20:29:35 +0000 http://www.tvhe.co.nz/?p=2972#comment-18169 […] The financial crisis explained in simple terms | TVHE […]

]]> By: The financial crisis explained in simple terms: | hilpers http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-17812 Thu, 05 Mar 2009 16:06:29 +0000 http://www.tvhe.co.nz/?p=2972#comment-17812 […] The financial crisis explained in simple terms: Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow her loyal customers – most of whom are unemployed alcoholics – to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around and as a result increasing numbers of customers flood into Heidi’s bar. Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most- consumed beverages. Her sales volume increases massively. A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi’s borrowing limit. He sees no reason for undue concern since he has the debts of the alcoholics as collateral. At the bank’s corporate headquarters, expert bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items. One day, although the prices are still climbing, a risk manager (subsequently of course fired due his negativity) of the bank decides that the time has come to demand payment of the debts incurred by the drink ers at Heidi’s bar. However they cannot pay back the debts. Heidi cannot fulfil her loan obligations and claims bankruptcy. DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor. The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties. The funds required for this purpose are obtained by a tax levied on the non-drinkers http://www.tvhe.co.nz/2009/02/24/the…omment-page-1/ […]

]]> By: Pregnancy Dates Calculator http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16425 Wed, 25 Feb 2009 10:48:26 +0000 http://www.tvhe.co.nz/?p=2972#comment-16425 […] The financial crisis explained in simple terms | TVHE […]

]]> By: Matt Nolan http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16396 Wed, 25 Feb 2009 07:17:30 +0000 http://www.tvhe.co.nz/?p=2972#comment-16396 Greg,

Your explanation involves blaming the government – which doesn’t hold water. You seem to be somehow blaming the government for the CDO?

The Fed did make a mistake and there is (and will be) a moral hazard problem from bailouts – but that is far from the whole story.

]]> By: Matt Nolan http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16395 Wed, 25 Feb 2009 07:15:35 +0000 http://www.tvhe.co.nz/?p=2972#comment-16395 Hi Matthew,

I don’t think that the explaination from the Freakonomics guys actually lines up with the reality – I also don’t think a kid would enjoy that fairytale very much 🙂

]]> By: Matthew http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16189 Tue, 24 Feb 2009 10:01:08 +0000 http://www.tvhe.co.nz/?p=2972#comment-16189 I just saw another great way to explain the crisis to your kids here: http://freakonomics.blogs.nytimes.com/2009/02/23/reading-about-kids-and-economics/

]]> By: get first stimulus boost this week « rssamerica-News-Business-Politics-Sports-Entertainment http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16134 Tue, 24 Feb 2009 01:24:15 +0000 http://www.tvhe.co.nz/?p=2972#comment-16134 […] – Jeremy Warner Monetize This!: Resolving a Spiraling Public Debt Crisis- How Obama could t.. The financial crisis explained in simple terms | TVHE The Crisis of Capitalism: Whirlwind Sweeps the Globe | LeftBanker First Blog Carnival of Credit, […]

]]> By: Matt Nolan http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16119 Mon, 23 Feb 2009 23:43:03 +0000 http://www.tvhe.co.nz/?p=2972#comment-16119 Hi agnitio,

I think that the example makes the government at the end sound ridiculous. All the firms linked to the bar in the above example existed “because” of the false belief’s surrounding asset values – if that real wealth doesn’t exist those firms shouldn’t be there in the first place. Bailing one body out to save those others is, weird …

]]> By: Greg Ransom http://www.tvhe.co.nz/2009/02/24/the-financial-crisis-explained-in-simple-terms/#comment-16115 Mon, 23 Feb 2009 22:52:24 +0000 http://www.tvhe.co.nz/?p=2972#comment-16115 You left some things out:

The FED loaned her a million dollars at 1% interest …

The Congress and the President blocked her from expanding her business until she agreed to give the drunks all the drinks they could drink on credit.

The FED for 40 years bailed out any bar that went underwater.

Government created and controlled “private” banks originated the market for DRINKBONDS, ALKBONDS and PUKEBONDS — with an implicit taxpayer backing for these junk bonds.

Well, that’s part of what you left out …

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