> Some of us have had a problem understanding the current > global recession. I thought it might be worthwhile > explaining it in simple terms. > > > > THE CURRENT ECONOMIC CRISIS EXPLAINED > > > Pajja is the proprietor of a Siri-Paya and Nehari Shop in > Lahore. Sales are low and, in order to increase them, he > comes up with a plan to allow his customers to eat now and > pay later. He keeps track of the meals consumed on a ledger. > > > Word gets around and as a result increasing numbers of > customers flock to Pajja’s shop. Pajja’s suppliers are > delighted and are very willing to sell more and more raw > materials for the meals he prepares. Pajja shows them his > ledger of receivables and they extend him credit. > > A young and dynamic customer service consultant at the > local bank recognizes these customer debts as valuable > future assets and gives Pajja a credit line and then > increases Pajja’s borrowing limit. > > Taking advantage of his customers' freedom from > immediate payment constraints, Pajja jacks up the prices of > his Nehari and Siri-Paye. Customers dont mind as they are > not required to pay on the spot. Sales volume increases > massively; Banks and suppliers lend more; Pajja opens more > outlets. He sees no reason for undue concern since he has > the debts of the customers as collateral. > > At the bank's corporate headquarters, expert bankers > recognize Pajja's customer loans as assets and transform > these customer assets into BONDS. These negotiable > instruments are given exotic names such as SIRIBOND, > PAYABOND, MAGHAZBOND AND BONGBOND. These securities are then > listed on the Stock Exchange and traded on markets > worldwide. No one really understands what the names mean and > how the securities are guaranteed but, nevertheless, as > their prices continuously climb, the securities become > top-selling items. > > One day, although the prices are still climbing, a credit > risk manager of the bank decides that the time has come to > demand payment of one of the debts incurred by Pajja. Pajja > in turn asks his clients to pay up. One by one they refuse; > the clients cannot pay back the debts. Pajja refuses to > serve them any more. The clients stop coming. > > Pajja is really screwed now. He cannot fulfill his loan > obligations and therefore claims bankruptcy.All Bonds drop > in price by between 80 to 95%. > > The suppliers of Pajja, having granted generous payment due > dates and having invested in the securities are faced with > similar problems. The meat supplier defaults on payment to > the sheep and cattle supplier and claims bankruptcy. The > atta supplier is taken over by a competitor; Pajja lays off > the cook and staff. Bankruptcies soar, unemployment > mushrooms. > > The bank that lent the money in the first place is set to > collapse. It is saved by the Government following dramatic > round-the-clock consultations by leaders from the governing > political parties with Pajja commuting back and forth in his > Executive jet and Mercedes 500SEL, brokering the deal. > > The funds required to save the economic collapse are > obtained by a tax levied on the citizens, most of whom do > not eat Nehari or Siri-paye. > > UNDERSTOOD?
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