The Credit Crunch Explained

Why the Credit Crunch is Confusing

So basically all the banks lent loadsa money to people and businesses. And then realised that they needed to have some money themselves, so borrowed loadsa money from other banks. And they lent this too, to people and businesses. But they got re-payed by the people and businesses and so with this new money, they lent LOADS of money to people and businesses, and gave some to other banks who lent that money to other banks and people and businesses whilst borrowing from other banks.

Confused. Of course you are. Because that doesn’t make any sense. And that’s the version with interest rates, hedge funds and all that financial jargon stuff taken out.

So let me explain what actually happened.

The Credit Crunch Explained

So there are lots of banks. Who have lots of money. And this money is in suitcases.

(If your confused already, maybe your beyond hope, but otherwise, your 75% of the way already. Told you this would be easy.)

Loadsa Money

The banks lend people and businesses suitcases full of money and then (eventually, usually after some angry letters) they get their suitcase back. Banks also lend each other suitcases full of money. Generally this is all very happy; rabbits hop around in fields, birds sing in the trees and people are able to get huge personal loans to purchase vast quantities of illegal drugs. It’s a glorious, capitalist world.

However, one day, someone at one of the banks did something really fucking stupid.

In the corner, were a huge pile of suitcases, which contained of course, all the banks money and assets.

(On second thoughts, maybe they were in a safe. Actually, no, that’s bollocks, this is all metaphor anyway, I’m sticking with corner.)

Those suitcases were completely different from the ones the bank started with years ago as obviously, they had been on the happy capitalist merry-go-round, being lent and borrowed from people, businesses and other banks.

Anyway, that’s not a problem because the bank was pretty sure how much money it had, how much it’s assets were worth, what it’s loans were worth and so on.

But then, one fatal day which was probably a Tuesday (I hate Tuesdays), some idiot at the bank thought they had better actually do something because their job didn’t consist of doing anything except harassing customers when they walked in the front door. So he, or she, thought they’d have a quick check and so opened up a suitcase with a big £1million loan sign on it, only to find a half eaten sandwich and a copy of Razzle.

Finding out that something you think is worth £1million actually consists of some mouldy bread and some very suspicious looking stains on a titty mag is pretty upsetting, I’m sure you’ll agree. Much more upsetting was the fact that the girl (It was definitely a girl, the Garden of Eden analogy is too much of an open-goal for me not to shoot) opened a bunch more suitcases with similar tags on them, only to find a few pennies and a used pair of unisex underwear, at which point she immediatly reported to her superiors (who were men).

Shit

News spread and before long, another bank had opened up all their suitcases to find nothing but some dust and quite upsettingly a dead leprechaun (who even more upsetting, had no gold).

Before long, banks the world over began to realise that their big pile of suitcases worth $300billion dollars might be worth not $300billion dollars but absolutely fuck all.

And that, is how the whole financial meltdown started and why banks are refusing to lend anyone any money.

Gameshow Analogy

So, as I have shown, the credit crunch has been caused essentially because the banks have lost a massive game of Deal or No Deal.

You pick a load of suitcases and you cross your fucking fingers that they have something good inside.

The banks who picked some really shit suitcases, are the people who on Deal or No Deal end up going home with jackshit, much to the amusement of the nation.

However, when banks like Lehmann Brothers did it, it was slightly less amusing, because they have all your money. And it turns out that they have swapped it for a suitcase with a half eaten banana in it.

No wonder everyone fucking hates bankers.

Super Gordon Saves the World

Well one of the things about the English is that, supposedly, we are quite humble, polite people; with of course the exception of the swathes of people who listen to ‘da hip-hip moosik’ and wear “caps n ‘oodies” whilst running around shopping centres after dark going “brup brup!”

But I mean our adults, they are pretty humble right. Well seems our Prime Minister disagrees.

In Prime Ministers Questions this week, Gordon Brown declared “We have saved the world”. Check it here.

So. Since Gordon has saved your sorry little ass, you better read on to find out how he did it.

Cutting VAT by 2.5%

Genius. At least that’s what Gordon will tell you. I actually found an envelope, which on the back I found the mathematical and economical basis of this decision, which the government announced recently, which sees EVERYTHING in the ENTIRE country get 2.5% cheaper.

Recession = Unemployment = Less money = Less spending = Less Jobs = Less Money

Ergo

Recession = Unemployment = Less money BUT + approx £12.5billion of money diverted away from the treasury back into the pockets of the consumer = Everything is going to be fine and the people will be demanding for a statue of me in Trafalgar Square.

Problem

£12.5 billion! That’s alot. I could definitely get a PS3 with that, which would be sweet. But, how does Gordon Brown know that’s how much money the economy needs? Uh oh, he doesn’t.

Thanks to knutjobs.com!

But that’s just an arbitary point really, the real point is that the £12.5billion isn’t something Gordon found behind the sofa in Number 10. Nope. It’s just tax. Which Gordon isn’t going to take. The money isn’t really being pumped into the economy at all, it’s just not being sucked out.

So it’s a random amount of money and it’s not even being pumped in. But the ultimate error is Gordon has already spent the £12.5billion because he was pretty sure he was actually going to suck it out.

So the £12.5billion which isn’t being sucked out has already been spent, so instead Gordon is borrowing £12.5billion so the bailiffs don’t come to the Commons and rip out that lovely green trim they have going on there.

So, Gordon’s VAT cut is him not sucking out £12.5billion from the economy, but just sucking it from somewhere else. But we’ll have to pay them back. And we’ll have to pay them back around £20billion, because of interest.

So Gordon Brown has mortgaged the country for no reason, causing our currency to crash to record lows, as most investors in the UK have decided to all collectively fuck off very quickly,  making all our stuff cheap for the entire world to enjoy. With that deflationary event, the rest of the world can ride out the recession as Britain returns to being the sweatshop of the world.

And that’s how Gordon saved the world.