And this is a rather wonderful analogy of the current credit crisis for people who don't quite get it. But this actually has to be the best and most succinct explanation:
If you owe the bank $10m, it’s the bank’s problem.
If you and a million others owe the bank $10 each, it’s still your problem – but it’s also the bank’s problem.
If the bank then sells to an investor the $10 you owe, it ought to be the investor’s problem.
But if you have a problem repaying the $10 – and so do a million others – it’s both the investor’s problem and the bank’s problem.
Your problems and the investor’s problems mean the bank now owes another bank $10bn. That is both banks’ problem. But if neither bank will pay the $10bn it owes the other, it can quickly turn into a $700bn systemic problem.
And if the government then owes the banking system $700bn, it’s your problem."
If you and a million others owe the bank $10 each, it’s still your problem – but it’s also the bank’s problem.
If the bank then sells to an investor the $10 you owe, it ought to be the investor’s problem.
But if you have a problem repaying the $10 – and so do a million others – it’s both the investor’s problem and the bank’s problem.
Your problems and the investor’s problems mean the bank now owes another bank $10bn. That is both banks’ problem. But if neither bank will pay the $10bn it owes the other, it can quickly turn into a $700bn systemic problem.
And if the government then owes the banking system $700bn, it’s your problem."
Courtesy of www.themoneymeltdown.com
1 comment:
nicely summarized
Post a Comment