The Credit Crisis Explained

Real Estate Agent with Keller Williams Advisors Realty

Once upon a time... a man appeared in a village 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 thousands at $10 and, as supply started to diminish, the 
villagers stopped their effort. He next announced that he would now buy monkeys 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 scarce it was an effort to even find 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 buy on his behalf. In the absence of the man, the assistant told the villagers: "Look at all these monkeys in the big cage that the man has 
already collected. I will sell them to you at $35 and when the man returns from the city, you can sell them to him for $50 each." 

The villagers quickly bought all of the monkeys that they could, but soon were out of 
cash. Sensing opportunity, MonkeyWide Bank started offering $30 loans to any villager who
wanted a monkey. Villagers with very little money could now buy monkeys. The village chief
proclaimed great pride in the ability of everyone to own monkeys. More monkeys were sold.

Alas, there were some villagers who didn't want any part of this monkey business. They put their money in Crumibank. Crumibank invested the money in safe bond issued by MonkeyWide. These bonds were rated SuperDuperGood by Sloppy & Ponzi, a group of experts who said that since monkeys could never be worth less than $10 each, the bonds would be safe. They bought insurance from All-Is-Good Insurance promising to pay them back if S&P was wrong. 

Eventually the villagers bought all the monkeys in the cage. The assistant left. While they were waiting for the man to come back villagers started trading monkey amongst themselves. Lowman Brother helped them trade monkeys amongst themselves and helped raise funds to finance expeditions to far away villages to buy more monkeys.

They all felt wealthy and successful for a while, and bought lots of other stuff with all their new wealth. They had lots of monkeys and thought they had lots of money. But they never saw the man or his assistant again, only lots and lots of monkeys! I think we all know what happened to MonkeyWide and Lowman. 

We should not feel too sorry for the villagers, at least you can eat a monkey if you have to!

Reprinted with permission from author, John Stein

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