why and how the 2008 economic crisis happen?
In: Economics
Imagine you and your friends want to have some bicycles. I decide to give you money for it on the condition that you will keep paying me some little money every day and return the money eventually. I’ll actually own the bikes. I give out $1000 in total to buy the bikes and kids are riding happily. The mayor of town loves me cause I’ve done something great.
Then I go to uncle Richard, and say, “hey I’ve got 10 kids who are paying me interest of $50 every year and will eventually return $1000. Do you want to buy *that* for $1050?” and he buys that. He then sells it on, and the entire neighbourhood is trying to squeeze some money out of this.
But all of a sudden, some of the kids stop paying the money back. So Uncle Richard technically has some bikes now, but can’t get money, bikes aren’t worth that much…
All of a sudden, the neighbourhood has sunk their money into something that’s not worth that much. Their money has practically vanished. Kids can’t ride bikes, they have no money to get new stuff. The mayor needs to pump some money into the system to get things started again.
You see, everyone’s worse off…
Except me!!! but I’m nowhere to be found. Bye!!!
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