How Wall Street Works

October 23, 2008

Yesterday I gave blog time to Forrest Gump and the mortgage crises. Today I must yield an equal amount of time to explain how Wall Street works. This explanation also showed up in my in box from reader “jes”.

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Once upon a time in a place overrun with monkeys, a man appeared and announced to the villagers that he would buy monkeys for $10 each.

The villagers, seeing that there were many monkeys around, went into the forest and started catching them.

The man bought thousands at $10 each.

As supply started to diminish, they became harder to catch, so the villagers stopped their effort.

The man then announced that he would now pay $20 for each monkey.

This renewed the efforts of the villagers and they started catching monkeys again.

Soon the supply diminished even further and they were ever harder to catch, so people started going back to their farms and forgot about monkey catching.

The man then increased his price to $25 each and the supply of monkeys became so sparse that it was an effort to even see a monkey much less catch one.

The man now announced that he would pay $50 per monkey, but that he had to go to the city for some business, and his assistant would buy the monkeys on his behalf.

When he had left, the assistant told the villagers: ‘Look at all those monkeys in the big cage that the man has bought. I will sell them to you for $35 each; and when the man returns from the city, you can sell them to him for $50 each.’

The villagers rounded up all their savings and bought all the monkeys.

They never saw the man or his assistant again, and once again there were monkeys everywhere.