In laymans terms, how did they hide the poor health of the company from regulators and tbe public, why did the house of cards eventually collapse? And why couldn’t every company be doing the same or similar houdini tactics then and now?
In: Economics
Kenny wants to open a lemonaid stand. He’ll need lemons, water, sugar, and a table. Kenny borrows money from his mom to buy those things and promises to pay her half of the profits. He gets set up and for a while is running a successful lemonade stand.
Then Kenny has a problem. The price of lemons keeps going up and down. He realizes he can make a bet that lemons will go up in price so if they do, the winnings from the bet offset the increased costs of the lemons. If the price fall, he loses the bet but that’s offset by being able to buy cheaper lemons. These bets are successful and Kenny focuses more and more on that. Soon the business is basically just gambling on the price of lemons. Kenny doesn’t tell his mom about the gambling and spends the money he was supposed to split with his mom on toys.
Kenny is so busy gambling on lemon prices he hires a friend to run the lemonade stand. He convinces the friend to get paid in ownership of the company like his mom and share in the profits (that Kenny has been keeping for himself).
Then Kenny’s bets stop winning. The lemonade stand can’t afford lemons anymore. Mom asks for her money back, but it’s gone. The friend asks for his money, but it’s gone too.
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