29/07/2012

The Credit Crunch



This is now an actual exam question at A-Level. Multiple choice AND it’s a two parter.

Since the dawn of time, man has needed a place to live. Sensibly, we have decided to make this one of the most expensive and difficult things to achieve.
Consequently, many people need to take out a loan in order to procure said hovel.

Cavalier Banks, in order to live up to their tagline at the time, ‘If you have what it takes, you can have it all’ which was later borrowed by the movie ‘Fast and Furious’, have been doling out cash using the highly rigorous and searching interview technique shown below. Here is a typical transcript;

Man – ‘I earn $40,000 a year, what is a sensible loan amount?
Bank – ‘We will loan you ’$320,000’
Man – ‘Awesome’
Bank – ‘Making dreams happen.’

People therefore started snapping up over priced gaffes just for the halibut*
Suddenly, any fin was possible** and the economy went bonkers.

Question 1

Assess the potential risks of this economic model

a)      Is this a trick question?
b)      Howard’s given me extra
c)      I’ve just thrown a double and invaded Russia
d)      None of the above
e)      All of the above

Meanwhile, banks, having apparently forgotten that they were indirectly financing it, started investing money in the booming real estate market. No one thought to check where all this money had suddenly come from. Until….

Question 2

What happened next?

a) During a routine, ‘How much money do we have’, meeting, they realised that a couple of columns on their ‘Profits’ spreadsheet had been hidden by an intern 2 years ago.
b) They floated a penny on the stock exchange and it dropped.
c)  Someone tried to get money out of a cash point and complained when a moth flew out.
d)  They tuned into an episode of Newsnight, were scared witless by Paxman and decided to ‘fess up.
e)  They realised the whole plan was a total bust, that they only owned the Old Kent road card, were sent to jail and didn’t collect £200.

*I reserve the right to make ONE fish pun
**Ok TWO.

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