From My InBox:
Suppose that every day, ten men go out for beer and the bill for all ten comes to $100.
If they paid their bill the way we pay our taxes, it would go something like this:
The first four men (the poorest) would pay nothing.
The fifth would pay $1.
The sixth would pay $3.
The seventh would pay $7.
The eighth would pay $12.
The ninth would pay $18.
The tenth man (the richest) would pay $59.
So, that's what they decided to do.
The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve.
"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by $20." Drinks for the ten now cost just $80.
The group still wanted to pay their bill the way we pay our taxes.
So the first four men were unaffected.
They would still drink for free. But what about the other six men? The paying customers?
How could they divide the $20 windfall so that everyone would get his fair share?'
They realized that $20 divided by six is $3.33. But if they subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.
So, the bar owner suggested that it would be fair to reduce each man's bill by roughly the same amount, and he proceeded to work out the amounts each should pay.
And so the fifth man, like the first four, now paid nothing (100% savings)
The sixth now paid $2 instead of $3 (33% savings).
The seventh now pay $5 instead of $7 (28% savings).
The eighth now paid $9 instead of $12 (25% savings).
The ninth now paid $15 instead of $18 ( 20% savings).
The tenth now paid $49 instead of $59 (16% savings).
Each of the six was better off than before. And the first four continued to drink for free.
But once outside the restaurant, the men began to compare their savings.
"I only got a dollar out of the $ 20,"declared the sixth man.
He pointed to the tenth man," but he got $10!"
"Yeah, that's right," exclaimed the fifth man. "I only saved a Dollar, too.
It's unfair that he got ten times more than I!"
"That's true!!" shouted the seventh man. "Why should he get $10 back when I got only two? The wealthy get all the breaks!"
"Wait a minute," yelled the first four men in unison. "We didn't get anything at all. The system exploits the poor!"
The nine men surrounded the tenth man and beat him up.
The next night the tenth man didn't show up for drinks, so the nine sat down and had beers without him.
But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!
And that, boys and girls, journalists and college professors, this is how our tax system works.
The people who pay the highest taxes get the most benefit from a tax reduction.
Tax them too much, attack them for being wealthy, and they just may not show up anymore.
In fact, they might start drinking overseas where the atmosphere is somewhat friendlier.
David R. Kamerschen, Ph.D.
Professor of Economics
University of Georgia
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
Showing posts with label alarm set. Show all posts
Showing posts with label alarm set. Show all posts
Wednesday, April 22, 2009
Thursday, March 19, 2009
Financial Crisis explained in simple terms.
From My InBox:
Heidi is the proprietor of a bar in Berlin . In order to increase
sales, she decides to allow her loyal customers - most of whom are
unemployed alcoholics - to drink now but pay later. She keeps track of the
drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers
flood into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment
constraints, Heidi increases her prices for wine and beer, the
most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank
recognizes these customer debts as valuable future assets and increases
Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the
alcoholics as collateral.
At the bank's corporate headquarters, expert bankers transform these
customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities
are then traded on markets worldwide. No one really understands what these
abbreviations mean and how the securities are guaranteed. Nevertheless, as
their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a risk manager
(subsequently of course fired due his negativity) of the bank decides that
slowly the time has come to demand payment of the debts incurred by the
drinkers at Heidi's bar.
However they cannot pay back the debts.
Heidi cannot fulfill her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs
better, stabilizing in price after dropping by 80 %.
The suppliers of Heidi's bar, having granted her generous payment due
dates and having invested in the securities are faced with a new
situation. Her wine supplier claims bankruptcy, her beer supplier is taken
over by a competitor.
The bank is saved by the Government following dramatic
round-the-clock consultations by leaders from the governing political
parties.
The funds required for this purpose are obtained by a tax levied on
the non-drinkers.
Heidi is the proprietor of a bar in Berlin . In order to increase
sales, she decides to allow her loyal customers - most of whom are
unemployed alcoholics - to drink now but pay later. She keeps track of the
drinks consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers
flood into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment
constraints, Heidi increases her prices for wine and beer, the
most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank
recognizes these customer debts as valuable future assets and increases
Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the
alcoholics as collateral.
At the bank's corporate headquarters, expert bankers transform these
customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities
are then traded on markets worldwide. No one really understands what these
abbreviations mean and how the securities are guaranteed. Nevertheless, as
their prices continuously climb, the securities become top-selling items.
One day, although the prices are still climbing, a risk manager
(subsequently of course fired due his negativity) of the bank decides that
slowly the time has come to demand payment of the debts incurred by the
drinkers at Heidi's bar.
However they cannot pay back the debts.
Heidi cannot fulfill her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs
better, stabilizing in price after dropping by 80 %.
The suppliers of Heidi's bar, having granted her generous payment due
dates and having invested in the securities are faced with a new
situation. Her wine supplier claims bankruptcy, her beer supplier is taken
over by a competitor.
The bank is saved by the Government following dramatic
round-the-clock consultations by leaders from the governing political
parties.
The funds required for this purpose are obtained by a tax levied on
the non-drinkers.
Monday, November 24, 2008
A Modern Parable.
Is this how you are running your business?
==============================================================================
From My InBox:
A Japanese company ( Toyota ) and an American company (Ford Motors)
decided to have a canoe race on the Missouri River Both teams practiced
long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the
reason for the crushing defeat. A management team made up of senior
management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had 8 people rowing and 1 person
steering, while the American team had 7 people steering and 2 people
rowing.
Feeling a deeper study was in order; American management hired a consulting
company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while
not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent
another loss to the Japanese, the rowing team's management structure was
totally reorganized to 4 steering supervisors, 2 area steering
superintendents and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 2 people
rowing the boat greater incentive to work harder. It was called the
'Rowing Team Quality First Program,' with meetings, dinners and free pens
for the rowers. There was discussion of getting new paddles, canoes and
other equipment, extra vacation days for practices and bonuses. The
pension program was trimmed to 'equal the competition' and some of the
resultant savings were channeled into morale boosting programs and teamwork
posters.
The next year the Japanese won by two miles.
Humiliated, the American management laid-o ff one rower , halted
development of a new canoe, sold all t! he paddle as, and canceled all
capital investments for new equipment. The money saved was distributed to
the Senior Executives as bonuses.
The next year, try as he might, the lone designated rower was unable to
even finish the race (having no paddles,) so he was laid off for
unacceptable performance, all canoe equipment was sold and the next year's
racing team was out-sourced to India.
Sadly, the End.
Here's something else to think about: Ford has spent the last thirty years
moving all its factories out of the US , claiming they can't make money
paying American wages.
TOYOTA has spent the last thirty years building more than a dozen plants
inside the US The last quarter's results:
TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.
Ford folks are still scratching their heads, and collecting bonuses...
IF THIS WEREN'T SO TRUE IT MIGHT BE FUNNY
==============================================================================
From My InBox:
A Japanese company ( Toyota ) and an American company (Ford Motors)
decided to have a canoe race on the Missouri River Both teams practiced
long and hard to reach their peak performance before the race.
On the big day, the Japanese won by a mile.
The Americans, very discouraged and depressed, decided to investigate the
reason for the crushing defeat. A management team made up of senior
management was formed to investigate and recommend appropriate action.
Their conclusion was the Japanese had 8 people rowing and 1 person
steering, while the American team had 7 people steering and 2 people
rowing.
Feeling a deeper study was in order; American management hired a consulting
company and paid them a large amount of money for a second opinion.
They advised, of course, that too many people were steering the boat, while
not enough people were rowing.
Not sure of how to utilize that information, but wanting to prevent
another loss to the Japanese, the rowing team's management structure was
totally reorganized to 4 steering supervisors, 2 area steering
superintendents and 1 assistant superintendent steering manager.
They also implemented a new performance system that would give the 2 people
rowing the boat greater incentive to work harder. It was called the
'Rowing Team Quality First Program,' with meetings, dinners and free pens
for the rowers. There was discussion of getting new paddles, canoes and
other equipment, extra vacation days for practices and bonuses. The
pension program was trimmed to 'equal the competition' and some of the
resultant savings were channeled into morale boosting programs and teamwork
posters.
The next year the Japanese won by two miles.
Humiliated, the American management laid-o ff one rower , halted
development of a new canoe, sold all t! he paddle as, and canceled all
capital investments for new equipment. The money saved was distributed to
the Senior Executives as bonuses.
The next year, try as he might, the lone designated rower was unable to
even finish the race (having no paddles,) so he was laid off for
unacceptable performance, all canoe equipment was sold and the next year's
racing team was out-sourced to India.
Sadly, the End.
Here's something else to think about: Ford has spent the last thirty years
moving all its factories out of the US , claiming they can't make money
paying American wages.
TOYOTA has spent the last thirty years building more than a dozen plants
inside the US The last quarter's results:
TOYOTA makes 4 billion in profits while Ford racked up 9 billion in losses.
Ford folks are still scratching their heads, and collecting bonuses...
IF THIS WEREN'T SO TRUE IT MIGHT BE FUNNY
Tuesday, November 4, 2008
Subprime crisis explanation by The Long Johns
The views of John Bird and John Fortune on turbulence in the financial markets.
To view more of such funny takes on the current financial crisis, go to YouTube.
To view more of such funny takes on the current financial crisis, go to YouTube.
Monday, November 3, 2008
States of Artificial Disasters: the path to Crisis
An interesting read to help us evaluate our values in life.
Tuesday, October 28, 2008
Wednesday, October 22, 2008
Understanding the Current World Financial Situation
From My InBox:
A simple explanation for the present financial crisis - the Indian way.....
Once upon a time in a village in India , a man announced to the villagers that he would buy monkeys for *$10.*
The villagers seeing there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at *$10*, but, as the supply started to diminish, the villagers stopped their efforts.
The man further announced that he would now buy at *$20.* 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 rate increased to* $25 * and the supply of monkeys became so little 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*! However, since he had to go to the city on some business, his assistant would now act as buyer, 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 collected. I will sell them to you at *$35* and when he returns from the city, you can sell them back to him for *$50*.'
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
* Welcome to WALL STREET...........*
The story is not complete, so I have added 2 episodes:
The real situation is actually more complicated. Had the transactions been confined to physical real monkeys, one could do a physical estimate and expose the con. The smart assistant (he went to Stanford) sold monkey futures to the villagers. Say he sold a contract for a future sale of 10 monkeys to be delivered in 2 weeks at $20 per monkey = $200. But there is no physical delivery in a future contract. Since the villagers expected the price to rise to $50, $20 is a real bargain. That $200 future monkey purchase contract would be worth $500 in 2 weeks. The assistant could sell any number of futures without reference to the actual population of monkeys. There was no need to sell real monkeys from the cage. When the con is exposed the villagers will be left with the original real monkeys and investors in futures with reams of paper.
And the assistant's brother-in-law was even smarter (he went to Harvard). He issued monkey bonds paying 5% pa (compared to the 1% pa from an old fashion bank). The money would be invested in another forest 100 miles away where there had been sightings of, on the average, 50 monkeys daily over the last 30 days. This information was passed on to a rating company. The young punks in the rating company then assumed that if there would be a daily harvest of 50 monkeys, then the expected income would amount to $912,500 (= 50 x 365 x $50). After deducting $100,000 for his profit, he would have $812,500 which could service total bonds of $16,250,000 at 5% pa.
Being a prudent person, the assistant's brother-in-law only expected to issue bonds of $11,000,000 in aggregate. Wow! That's very safe and the bond deserves a triple A rating subject to a fee. Of course, there has to be some risk. So there is a term in the monkey bond that made it worthless should a 'credit event' occur, 'credit event' being defined as anyone of the following: complete extinction of the monkey species, three monsoons in a row in India or DBS Bank becoming insolvent. Now any banker worth his MBA knows these would not happen. So off the banker went to sell $11,000,000 worth of bonds to retirees who were greedy enough to believe the banker's "It's very safe" story.
Of course, we now know that the assistant's brother-in-law disappeared along with the assistant, having pocketed $10,000,000 after deducting say, a million dollars to the banker.
Now the central bank says, "Caveat emptor, mate!"
A simple explanation for the present financial crisis - the Indian way.....
Once upon a time in a village in India , a man announced to the villagers that he would buy monkeys for *$10.*
The villagers seeing there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at *$10*, but, as the supply started to diminish, the villagers stopped their efforts.
The man further announced that he would now buy at *$20.* 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 rate increased to* $25 * and the supply of monkeys became so little 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*! However, since he had to go to the city on some business, his assistant would now act as buyer, 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 collected. I will sell them to you at *$35* and when he returns from the city, you can sell them back to him for *$50*.'
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
* Welcome to WALL STREET...........*
The story is not complete, so I have added 2 episodes:
The real situation is actually more complicated. Had the transactions been confined to physical real monkeys, one could do a physical estimate and expose the con. The smart assistant (he went to Stanford) sold monkey futures to the villagers. Say he sold a contract for a future sale of 10 monkeys to be delivered in 2 weeks at $20 per monkey = $200. But there is no physical delivery in a future contract. Since the villagers expected the price to rise to $50, $20 is a real bargain. That $200 future monkey purchase contract would be worth $500 in 2 weeks. The assistant could sell any number of futures without reference to the actual population of monkeys. There was no need to sell real monkeys from the cage. When the con is exposed the villagers will be left with the original real monkeys and investors in futures with reams of paper.
And the assistant's brother-in-law was even smarter (he went to Harvard). He issued monkey bonds paying 5% pa (compared to the 1% pa from an old fashion bank). The money would be invested in another forest 100 miles away where there had been sightings of, on the average, 50 monkeys daily over the last 30 days. This information was passed on to a rating company. The young punks in the rating company then assumed that if there would be a daily harvest of 50 monkeys, then the expected income would amount to $912,500 (= 50 x 365 x $50). After deducting $100,000 for his profit, he would have $812,500 which could service total bonds of $16,250,000 at 5% pa.
Being a prudent person, the assistant's brother-in-law only expected to issue bonds of $11,000,000 in aggregate. Wow! That's very safe and the bond deserves a triple A rating subject to a fee. Of course, there has to be some risk. So there is a term in the monkey bond that made it worthless should a 'credit event' occur, 'credit event' being defined as anyone of the following: complete extinction of the monkey species, three monsoons in a row in India or DBS Bank becoming insolvent. Now any banker worth his MBA knows these would not happen. So off the banker went to sell $11,000,000 worth of bonds to retirees who were greedy enough to believe the banker's "It's very safe" story.
Of course, we now know that the assistant's brother-in-law disappeared along with the assistant, having pocketed $10,000,000 after deducting say, a million dollars to the banker.
Now the central bank says, "Caveat emptor, mate!"
Tuesday, October 21, 2008
Set The Alarm
Everybody's talking about the economic crisis. Maybe it is time to check our spending habits.
Before you take out that credit card, take a deep breath and ponder for a moment. Are actually trying to catch up with the Joneses, again?
That should set the alarm ringing.
Before you take out that credit card, take a deep breath and ponder for a moment. Are actually trying to catch up with the Joneses, again?
That should set the alarm ringing.
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