How a Bail-out Works

Interesting quote from the Financial Times:

The rain beats down on a small Irish town. The streets are deserted. Times are tough. Everyone is in debt and living on credit. A rich German arrives at the local hotel, asks to view its rooms, and puts on the desk a €100 note. The owner gives him a bunch of keys and he goes off for an inspection.

As soon as he has gone upstairs, the hotelier grabs the note and runs next door to pay his debt to the butcher. The butcher hurries down the street to pay what he owes to his feed merchant. The merchant heads for the pub and uses the note to pay his bar bill. The publican slips the note to the local hooker who’s been offering her services on credit. She rushes to the hotel to pay what she owes for room hire. As she puts the €100 note on the counter, the German appears, says the rooms are unsuitable, picks up his €100 note and leaves town.

No one did any work. No one earned anything. Everyone is out of debt. Everyone is feeling better. And that is how a bail-out works.

7 thoughts on “How a Bail-out Works”

  1. Yea…. not quite, more like…

    Government introduces Quantatative Easing and creates 500bn out of thin air (think: run printing press non-stop)
    Existing money base now diluted proportionately
    Commodity suppliers realise this and raise prices for oil, corn, steel, etc
    Increased commodity price increases both cost of business and cost of living
    Inflation results
    Everyone’s living standards drop as business cannot match pay rises to real rate of inflation, and this isn’t CPI

    But hey, at least the government can inflate a portion of their debt away!

  2. Or another method that bailout money is raised…

    – Government issues bonds (Investors loan money to government for guaranteed return over fixed period)
    – Provide bailout money to entity in need
    – Government pays back principal plus interest to investor upon bond maturity (can be 30years)
    – Government raises this money by way of tax revenues
    – Your children pay for the bailout

    But hey, at least the government bought the votes of today with the money of tomorrow!

      1. Okay, I’m the BUYER. I place $20 in the box. And then I buy the box for $30. I’m out $50 in total, but I get the box, which contains $40, so I’m down $10.

        Now I’m the SELLER. I place $20 in the box (so I’m out $20), then I sell the box for $30 (so I’m up $10).

        Buyer down $10. Seller up $10.

        Balance.

        Still, it’s a shitcock when you first look at it! =D

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