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I have only limited understanding of the financial sector , particularly the ways of the stock market,mortgages and the the sub-prime mortgage mess. Have been therefore talking to friends who are closer to mortgages and banks and they have been trying to explain what was going on and how the global meltdown has escalated.
It was not until I saw Alan Greenspan's testimony on TV that I got some better insight. But check out the clip from YouTube:
Not yet clear? Check out the monkey story explaining stock market bubbles and "moral" bubbles that a dear friend sent me via email:
Once upon a time in a village, a man announced to the villagers that he would buy monkeys for $10.
The villagers seeing there were many monkeys around, went out to the forest and started catching them.
The man bought thousands at $10, but, as the supply started to diminish, the villagers stopped their efforts.
The man further announced that he would now buy at $20. This renewed the efforts of the villagers and they started catching monkeys again.
Soon the supply diminished even further and people started going back to their farms. The offer rate increased to $25 and the supply of monkeys became so little that it was an effort
to even see a monkey, let alone catch it!
The man now announced that he would buy monkeys at $50! However, since he had to go to the city on some business, his assistant would now act as buyer, on his behalf.
In the absence of the man, the assistant told the villagers: ' Look at all these monkeys in the big cages that the man has collected. I will sell them to you at $35 and when he returns
from the city, you can sell them back to him for $50. '
The villagers squeezed together their savings and bought all the monkeys.
Then they never saw the man or his assistant again, only monkeys everywhere!
I am beginning to get the picture….