RE: Banker's stupidity in loaning money
The Lesson of Pierre & Sasson
Once there were two Cajun farmers down in Louisiana named Pierre and Sasson. One day Pierre is over at Sasson's farm admiring his horse. "Sasson, mon ami," said Pierre, "that ees a beautiful horse. I must buy that horse."
"Ah Pierre," relied Sasson, "I cannot sell eet. I have owned thees horse for a long time and am very fond of eet."
"But ah will geev you teen dloaire for eet," says Pierre.
"Ooo la la," says Sasson, "zen reluctantly, I agree", and they wrote up a contract.
About a week later, Sasson comes over to Pierre's farm and says, "Ah Pierre, mon ami, I must have my horse back, I miss eet terribly."
"But Sasson," replies Pierre, "I cannot do zat. I bought a cart for thees horse to pull, and ze cart cost me five dolaire."
"Ah, but I will geev you twenty dolaire for both zee horse and zee cart," says Sasson. Pierre does a quick calculation-a five-dollar profit on a 15-dollar investment in one week-that's over 1700 percent annualized rate of return! So he says, "Done, mon ami!"
Pierre and Sasson keep trading the horse, cart, and other minor additions back and forth until they no longer have enough cash to finance each successive trade. So, they get the local banker involved. The banker, looking at their creditworthiness and the historic appreciation of the horse's value, loans money first to Pierre and then to Sasson, with the price of the horse escalating on each trade. After each transaction, the banker gets paid back in full, plus interest, and both Pierre's and Sasson's cash flow is increasing geometrically.
Well, this goes on and on, until after several years, Pierre buys the horse for $1,500. Then a Yankee (an MBA from Harvard), gets wind of the price appreciation of the horse and, after making some sophisticated rate of return projections, makes a special trip to Louisiana and buys the horse from Pierre for $2,700.
When Sasson finds out about the sale, he is furious, and charges over to Pierre's farm yelling, "Pierre! Idiot! How could you sell zat horse for twenty-seven-hundred dolaire! We were making a great living on zat horse!"
How's that for a lesson in "Buyers & Sellers Remorse" and high finance. Damned if it doesn't sound like what is going on in our market.
Regards,
TCLAUDE |
