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Wednesday, July 4, 2012

A tale of a farm

Once upon a time there was a farm. It belonged to a large family and all family members worked on the farm. Thus, they could be more or less self-sufficient as regards foodstuffs and since they produced more than the could consume, they sold the surplus to generate money to buy all the other things they needed.

One day, a banker visited the family and offered them very cheap loans seemingly in unlimited amounts. The banker, of course, had the value of the farm in the back of his mind when he considered his risk.

The family was very happy. They no longer needed to work the farm to get their foodstuffs. In fact, they didn't need to work at all any longer because the loans which the banker granted them were more than enough to pay for everything they needed. The family enjoyed life.

The day came when the banker got a bit nervous about the amount of debt outstanding and told the family that they would have to do something about that. The banker said he would make no more new loans. The family was up in arms because then they would no longer have anything to eat.

The banker could have told the family: look, your farm is a valuable property. I will sell it and use the proceeds of the sale to pay off my loans. You will have to figure out another way to make a living. Instead, the banker sat down with the family to figure out ways how the problem could be solved in cooperation.

The family agreed to go back and work the farm again. The only problem was that they no longer had the necessary machinery and equipment. The banker was prepared to finance new machinery and equipment, but only that.

So, the family returned to working the farm at full capacity and they had all the foodstuffs they needed and money to buy the rest of the things (as before). Except, they didn't have the money to pay interest to the bank or to repay the debt.

Now the banker told them: look, you have to figure out how to generate additional income. Perhaps one or two of you can get a job and earn a salary from the outside. Perhaps you can rent part of the farm to tourists in the summer. Perhaps you can sell those parts of the farm which you really don't need.

And the moral of the story is? If you consume more than you earn, you have to borrow. If you can't borrow any longer, you have to figure out other ways to generate revenues. You can't cut your expenses altogether because you must have something to live on.

PS: who lost in this game? The nearby supermarket, of course, because they could no longer sell the farmers foodstuffs and everything else they needed.

2 comments:

  1. Sadly, what seems to happen is that Father and Mother decided to squeeze the additional income from their hard-working younger children, who are by now drained. They did not, however, seem to touch at all the already well-off richer older children, who somehow managed to "hide" their wealth. So a few of the younger children decided to leave the family farm, work abroad and not to bother any more with such irresponsible parents, who do not seem capable of changing.
    Perhaps that completes the family-Greece parallel parable? And perhaps we can find more losers in this story?

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    Replies
    1. You are right. This would happen if the family did not show any solidarity. But which family would not show solidarity when that is good for the whole family?

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