How bail-outs work—here, let me rewrite that for you
First, read this deranged metaphor by Sue Cameron, columnist for the Financial Times. The crazy, it burns.
So I decided her fairytale needed retelling. I am not saying mine is more realistic, I just want to show how easy it is for a metaphor to lose its magical powers.
The rain beats down on a small Irish town. The streets are deserted. Times are tough. Everyone is in debt and everyone’s credit is cut off. A rich German arrives at the local hotel, asks to view its rooms, and puts on the desk a € 50 note for reasons only crazy Germans know. 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 half of his debt to the butcher. The butcher supplies the hotel owner with € 100 worth of meat on credit, then hurries down the street to pay half of what he owes to his feed merchant. The merchant supplies the butcher with € 100 worth of feed on credit, then heads for the pub and uses the note to pay half of his bar bill–the bar owner is so happy that he extends the merchant’s credit with € 100. The publican slips the € 50 note to the local hooker who’s been offering her services on credit. She gratefully gives him the full service, all € 100 worth, and all on credit. Then she rushes to the hotel to pay half of what she owes for room hire. As she puts the € 50 note on the counter, the German appears, says the rooms are unsuitable, picks up his € 50 note and leaves town.
People did lots of work. Everybody except the wealthy German is 50 euro further in debt. Everyone is feeling better, for a very short while. And that is how a bail-out works?