Financial Bailout - How it works
essex-commuter
Posts: 2,188
What is a Financial Bail-Out?
It is a slow day in a damp little Irish town. The rain is beating down harshly, and all the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.
On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
The owner gives him some room-keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
The butcher takes the €100 note and rushes down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of animal feed and fuel.
The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the friendly neighbourhood pub. The pub owner slips the money along to the local prostitute drinking at the bar - who, in spite of facing hard times, has always gladly offered him her 'services' on credit.
The hooker then rushes over to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor quietly replaces the €100 note back on the counter, so that the rich traveller will not suspect anything.
At that moment the traveller comes down the stairs, states that none of the rooms are satisfactory, picks up the €100 note, pockets it and leaves town.
No one has produced anything. No one has earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
And that, dear ladies and gentlemen, is how a basic financial bailout package works!
It is a slow day in a damp little Irish town. The rain is beating down harshly, and all the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.
On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night.
The owner gives him some room-keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.
The butcher takes the €100 note and rushes down the street to repay his debt to the pig farmer. The pig farmer takes the €100 note and heads off to pay his bill at the supplier of animal feed and fuel.
The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the friendly neighbourhood pub. The pub owner slips the money along to the local prostitute drinking at the bar - who, in spite of facing hard times, has always gladly offered him her 'services' on credit.
The hooker then rushes over to the hotel and pays off her room bill to the hotel owner with the €100 note.
The hotel proprietor quietly replaces the €100 note back on the counter, so that the rich traveller will not suspect anything.
At that moment the traveller comes down the stairs, states that none of the rooms are satisfactory, picks up the €100 note, pockets it and leaves town.
No one has produced anything. No one has earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
And that, dear ladies and gentlemen, is how a basic financial bailout package works!
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Comments
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what we need in an interplanetary bailout!15 miles each way commuter (soon to be 20)
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Neat bit of smoke & mirrors there, except the hotelier is still out of pocket by 100 Europeans as he's given it back to the Heinrich instead of putting it in his till where it needs to be. The lender of last resort has his money back and either Basil Fawlty has to chase up the tart for the money that he may or may not still be owed (you decide; has she paid him off), or he writes off the debt. Either way Heinrich still has his money in his wallet.
V analogous to the whole situation indeed.0 -
How it actually works:
Bank of England prints money, purchases government debt off banks. Banks take the cash and say "Thanks" then go back to sweating over the Credit Default Swaps they wrote against Greek government debt.
The expected multiplier effect of QE increasing the M0 money supply on the M3 money supply fails to happen.0 -
Surely the hooker would sleep with the Hotel Owner to wipe her debt clean and then pocket the E100.
Edit: How do you get the Euro sign on a Brit-Keyboard?Food Chain number = 4
A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game0 -
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Gov't agrees to put $x into banks, as equity, goes to bond market, auctions off $x of bonds at a competitive price, hope it gets bought up, and pays it back over the duration of the bonds. That's a bailout!0
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€ Wow it's the future I tell's ya!
Thanks.
But seriously the Hotel owner is useless and has no sense of enterprise in all of this. If he has hookers using his rooms he should be taking an additional €20 on the top for room rental, privacy, protection and not b*tch slapping them to the police. At the same time he should be advertising to the German (presumably he is getting tourists from EU mainland, it's all the rage there and in amongst our bankers/lawyers) an 'extra pillow' for the night - to guarantee business. Hooker/s get endless stream of punters, Hotel has repeat business. Win/win.
His advert:
"Come stay at our Hotel, our rooms are attended by a loving Irish or Celtic* beauty" *Disclaimer* Extra services come at an additional cost agreed in the room.
He'd rake it in!
*Irish/Celtic = exotic on the ContinentFood Chain number = 4
A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game0 -
^
Celtic“New York has the haircuts, London has the trousers, but Belfast has the reason!0 -
CiB wrote:Neat bit of smoke & mirrors there, except the hotelier is still out of pocket by 100 Europeans as he's given it back to the Heinrich instead of putting it in his till where it needs to be. The lender of last resort has his money back and either Basil Fawlty has to chase up the tart for the money that he may or may not still be owed (you decide; has she paid him off), or he writes off the debt. Either way Heinrich still has his money in his wallet.
V analogous to the whole situation indeed.
It's simpler even than that. The German is an irrelevance. The supporting players form a circle, in which each person owes X to the person on their left, and is owed X by the person on their right.
None of the people in the circle is insolvent. Their assets (what they are owed) equal their liabilities (what they owe). They could all sit down and agree to net off all of their debts and be in precisely the same position. No one needs to be lent anything for the circle of debt to be cancelled.
The real world isn't quite so accommodating. It doesn't create perfect circles of equal indebtedness.0 -
I'm typing about sex something I haven't had since May. I've got 3weeks to go until the grateful check (promise), though a C-section can complicate things I'm told. :x
I can't type about that subject and do so without a reduced degree of accuracy. Don't even ask me to ride a bike in straight line!!!Food Chain number = 4
A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game0 -
TailWindHome wrote:^
Celtic
Would that be like Utsler and Iirsh Rpeublic?1985 Mercian King of Mercia - work in progress (Hah! Who am I kidding?)
Pinnacle Monzonite
Part of the anti-growth coalition0 -
CiB wrote:Neat bit of smoke & mirrors there, except the hotelier is still out of pocket by 100 Europeans as he's given it back to the Heinrich instead of putting it in his till where it needs to be. The lender of last resort has his money back and either Basil Fawlty has to chase up the tart for the money that he may or may not still be owed (you decide; has she paid him off), or he writes off the debt. Either way Heinrich still has his money in his wallet.
V analogous to the whole situation indeed.
No you don't - sadly there never was any debt. It's like you owing a mate a fiver and him owing you a fiver at the same time. You can call yourself both in debt or neither in debt but it doesn't alter the amount of money in the system. I think if more people understood this, we'd be in a lot less of a mess..........Faster than a tent.......0 -
CiB wrote:Neat bit of smoke & mirrors there, except the hotelier is still out of pocket by 100 Europeans.
No he's not. In effect the money owed to him by the tart has been given to the butcher.
The €100 from the tourist just kicks off the circle. Everyone is in exactly the same net position as when they started.“New York has the haircuts, London has the trousers, but Belfast has the reason!0 -
The moral of the story is of course how much better off the town would be with no bank, estate agent, property developer or grubby politician.“New York has the haircuts, London has the trousers, but Belfast has the reason!0
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TailWindHome wrote:CiB wrote:Neat bit of smoke & mirrors there, except the hotelier is still out of pocket by 100 Europeans.
No he's not. In effect the money owed to him by the tart has been given to the butcher.
The €100 from the tourist just kicks off the circle. Everyone is in exactly the same net position as when they started.
Oh come on. Get with it. I covered this two hours ago!TailWindHome wrote:The moral of the story is of course how much better off the town would be with no bank, estate agent, property developer or grubby politician.
And you've got this completely wrong! If there is any moral re bank, estate agent etc from this story it is that they are all completely harmless because nobody is actually making a profit out of anything
Faster than a tent.......0 -
Money makes the world go round,
the world go round...
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But but but. Fawlty is effectively out of the loop in this tale of morality. He may have passed the first payment on but he's still owed 100E (ipod, no AltGr key). By providing a service rather than a tangible product we're duped into believing that his overheads are zero, but if it started withe barman for example out of his 100 he has to pay his supplier so the neat zero-sum circle is broken.
The hotelier has cleared his debt but is still down on the original 100 that the prossie owed him. If she'd provided a tangible asset rather than a service she'd be down too.
Like the man once said, Britain has become a service nation where we all make a living taking each other's washing in. That can't sustain indefinitely.0 -
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CiB wrote:But but but..
No“New York has the haircuts, London has the trousers, but Belfast has the reason!0 -
CiB wrote:But but but. Fawlty is effectively out of the loop in this tale of morality. He may have passed the first payment on but he's still owed 100E
...
The hotelier has cleared his debt but is still down on the original 100 that the prossie owed him.
Eh?
How is he down?
At start, Hotelier has 0, owes 100 to butcher, owed 100 by hooker. Net 0
Gunter lends 100 to hotelier. Hotelier now has 100, owes 200, owed 100. Net 0
Hotelier pays butcher. Hotelier now has 0, owes 100 to Gunter, owed 100. Net 0
The butcher ... pays hooker. Hotelier still has 0, owes 100 to Gunter, owed 100. Net 0
Hooker pays hotelier. Hotelier now has 100, owes 100, owed 0. Net 0
Hotelier returns 100 to Gunter. Hotelier now has 0, owes 0, owed 0. Net 0
Edit: TWH covered it actually
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So at what point does the hotelier decide that this state of affairs means that we have to close a load of libraries? 0
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BRBFaster than a tent.......0
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Rolf F wrote:
I agree! Let's get 'im!0 -
Mr John Clarke gives the best explanation yet of broken Europe.
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Ribble Audax0 -
T'was on LBC this morning, see the hotel owner is missing a touch with that one...
Assuming their's a Uni near the village of course.Food Chain number = 4
A true scalp is not only overtaking someone but leaving them stopped at a set of lights. As you, who have clearly beaten the lights, pummels nothing but the open air ahead. ~ 'DondaddyD'. Player of the Unspoken Game0 -
Surely the flaw in this is that in the real world, the German is already owed €100 by one of the Irish, but as they can't pay he needs to lend or gift them €100 so they can pay him the original debt? So in reality the German either ends up with a new €100 loan owing to him or is €100 down as he had to gift the money to get the original debt repaid."I spent most of my money on birds, booze and fast cars: the rest of it I just squandered." [George Best]0
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when this crisis finally kicks off ( the mega leyman bros moment) it will be the CDS web that will magnify it many, many times. the world's soveriegn debt is insured many times over for default and increasingly the policies are taken out by parties who don't even hold the debt ( as a cheap way to short soveriegn debt). there will be no bailout, it will not be possible this time. just delfault and CDS payout default. the Dow jones is headed for 500 ( two zeros) by 2016.SteppenHerring wrote:How it actually works:
Bank of England prints money, purchases government debt off banks. Banks take the cash and say "Thanks" then go back to sweating over the Credit Default Swaps they wrote against Greek government debt.
The expected multiplier effect of QE increasing the M0 money supply on the M3 money supply fails to happen.15 miles each way commuter (soon to be 20)
http://www.endomondo.com/profile/756236
http://www.strava.com/athletes/wyadvd0
