The Man and the Monkeys: A Wall Street Fable

[Joanne98]

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 knew that there were many monkeys in their forest. They left their farms on the plains and went into the forest to catch them. The man bought thousands at $10.

As the supply of monkeys started to diminish the villagers stopped looking. Finding and catching monkeys was soon no longer worth the effort for $10. They started to return to their farms to plant the spring crop.

The man then announced that he would buy monkeys for $20 each. This new higher price renewed the effort of the villagers and they headed back into the forest to find and catch monkeys again to sell.

When the monkey supply diminished even further that summer and the people started to return to their farms, worried they had not made enough money selling monkeys to buy all the food they needed but had not planted any crops yet either, the man raised the price he'd pay for monkeys to $25 each. The hunt was on again.

Soon the supply of monkeys became so small that a villager didn't see a monkey in a day of hunting let alone catch one. Even at $25 each the effort was not profitable so the villagers finally headed back to their farms that fall. After nine month's absence from their farms they knew the time had passed to produce enough food for the coming winter, but at least now they had enough money from selling monkeys to buy food to eat.

But the man wasn't finished. He announced that he would buy monkeys for $50 each! The villagers became very excited. He also explained that he had to go to the city on business and that his assistant was to stay behind to buy monkeys on his behalf.

As soon as the man left the assistant told the villagers, "So you think you have made a lot of money selling monkeys, don't you? But do you want to really get rich?"

"Yes, yes!" said the villagers.

The man's assistant went on. "I have a gigantic, enormous cage filled with monkeys. I will sell them to you for only $35 each and when the man returns from the city you can sell them to him for $50 each and make a fat profit. You don't even have to work to find monkeys at all. Then you can not only buy all the food you need for this winter you call all buy flat panel TVs, too."

The villagers were thrilled. They collected all of their savings together and bought all the monkeys in the assistant's cage then awaited the man's return.

They never saw the man nor his assistant again. All the monkeys that were once in the woods were now in the village. All of the villager's savings were gone. That winter, half the villagers starved.

Moral: Substitute housing for monkeys. As the winter of the US economy arrives, you still have the house you had before the price was bid up. Now that prices are falling back down, who has your savings? But don't worry. The government won't let you starve. To ensure re-election it will by inflation redistribute wealth from savers to debtors.

Now you know how Wall Street works an asset bubble racket.

(Original by Anonymous, improvements by metalman.)
http://www.itulip.com/forums/showthread.php?p=30493#post30493

[ThomWV]

1. Kick and Highly Recommend.

[kentuck]

2. kick

:kick:

[SammyWinstonJack]

3. K&R!

[Mountainman]

4. Makes no sense to me. How do you redistribute wealth from savers to debtors?

If you buy a house say for $100,000. You make payments, part interest and part principal. The principal payment lowers the debt. You have equity equal to the market value less the principal amount owed. As the market value increases the equity increases or your net worth increases (if this is the only debt you have). Have you really saved anything? Maybe you saved the amount of your principal payments. The increase in market value is not savings.

If the market value falls below the principal you owe you lose all your equity. People who own houses are losing equity because market values are falling.

You also lose equity by borrowing it. You basically negate the principal payments you made. In all these incidences no one is really saving (except for the principal payments made) and no one is transferring wealth.

So as I said I don't get the story.

[selador]

5. well

the market does not (just) transfer wealth - it builds it.

fwiw, i trade primarily futures.

futures market cannot (in aggregate) build wealth. it can ONLY redistribute it. since, it's zero sum.

much like a poker game w/no rake, all poker can do is redistribute wealth.

stock (and real estate ) markets can build it in the aggregate.


in the house example, you are not technically 'saving' since saving usually refers to risk free ferreting away of money, whereas investing refers to buying assets with the belief that in the long they will go up in value.

buying a home is an investment, but it also acts as a defacto sort of savings instrument, in that tying up your money there means (theoretically - if you aren't borrowing against it with a heloc etc.) since you are not spending it .

spending usually refers to either wasting assets or consumables. since you buy these not with the intent (or realization) that it will be worth more in the future.

in the case of the latter, you use it up after you buy it (food, gas, etc.) and in the former, like buying a new car off the lot - it loses value day by day

[Mountainman]

6. What about this.

The war in Iraq is costing us billions. That money comes from taxes. Taxes come from individuals. The money is spent on munitions. Corporations build and sell munitions. Corporations are owned by investors. So money (wealth) is taken from individuals via taxes given to investors via war. Wealth is being taken from savers and given to investors, not from savers to debtors.

The same thing in financial markets. Loans made to borrowers by corporations. Corporations are owned by investors. Borrowers pay interest on the loans. Interest rates are raised. Wealth is transfered from debtors to savers (borrowers to investors) not from savers to debtors.


It is so easy to take the middle class and call then the perps and the investing class as the victims. In reality it is the other way around. The share of wealth going to the top 1% has grown from 8% in the 80's to 16% in 2004. That is fact.

[selador]

10. about this

"The war in Iraq is costing us billions."

true dat

"That money comes from taxes."

and deficit spending... unfortunately.

"Taxes come from individuals."

and corporations. and private businesses.

" The money is spent on munitions. Corporations build and sell munitions. Corporations are owned by investors. So money (wealth) is taken from individuals via taxes given to investors via war."

to some extent, yes. any time govt. takes tax money (from people and corp's ) and spends it on something else - money is transferred

whether govt. is buying munitions, cheese, health care, widgets, concrete, or hassenfeffer.

" Wealth is being taken from savers and given to investors, not from savers to debtors."

this is nonsensical. either that, or im not getting it :)

"The same thing in financial markets. Loans made to borrowers by corporations. Corporations are owned by investors. Borrowers pay interest on the loans. Interest rates are raised. Wealth is transfered from debtors to savers (borrowers to investors) not from savers to debtors. "

not really.

investors BUY pieces of a company. those pieces are called stocks. when a company builds wealth (makes a better mousetrap, etc.) investors share in that wealth through capital appreciation.

stocks are ownership

bonds, otoh are loans. if i buy a bond, i am loaning a corporation money. the corporation pays me back over time.




It is so easy to take the middle class and call then the perps and the investing class as the victims. In reality it is the other way around. The share of wealth going to the top 1% has grown from 8% in the 80's to 16% in 2004. That is fact.true

[angstlessk]

11. IF companies only built wealth on the back of 'a better mouse trap' we could not be in this

banking situation. corporations build wealth using all sort of financial prestidigitation so no one knows under which card the pee resides!

[selador]

12. corporations and individuals

build wealth a # of ways. better mousetrap is part of that.

see: television, washing machine, internet, computer, ballpoint pen, etc.

do some lie cheat or steal? sure

[angstlessk]

13. oh, please, don't even go there we are not talking about Amana here

or Westinghouse who are now all in china doing bidness..we are talking about FINANCIAL INSTITUTIONS. fer heaven's sake!

[selador]

14. yes

and i know they are all EVIL and TERRIBLE and the world is an awful place and capitalism sux and...

are you claiming that financial institutions are somehow bad? cheating us? a great blight on society? what, exactly?

[angstlessk]

15. duh...YES! n/t

[selador]

16. well, we disagree n/t

[ThomWV]

8. You steal it, that's how you do it.

Read the story to the bottom. See where the bad guy doesn't come back to complete the deal? That is pure and simple theft.

[HCE SuiGeneris]

7. Definitely worth a K and R

[Joanne98]

9. kick

[leftofthedial]

17. and then the gummint gave the man $20 each for all the monkeys

he no longer had.