Saturday, October 11, 2008

Subprime crisis explained

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 hundreds at $10 and as supply started to diminish, the villagers stopped their efforts.

At this point the man announced that he would now buy at $20 each. 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 limited that it was an effort to even see a monkey, let alone catch it!

The man now announced that he would buy monkeys at $50 each! However, since he had to go to the city on some business, his assistant would now buy on his behalf for him.

In the absence of the man, the assistant told the villagers, "Look at all these monkeys in the big cage that the man has collected. 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 with all their savings and bought all the monkeys.

They never saw the man nor his assistant again, only monkeys everywhere!

Now you have a better understanding of subprime crisis...

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