By MICHAEL GRAY
Could this scenario circulating through the Web be the answer to the derivative nightmare?
Since many counterparties in the derivative market may be the same firm in many swaps and CDOs, this example could be over complicated.
Please let me know what you think.
It is August. In a small town on the South Coast of France, holiday season is in full swing, but it is
raining so there is not too much business happening. Everyone is heavily in debt.
Luckily, a rich Russian tourist arrives in the foyer of the small local hotel. He asks for a room and
puts a Euro100 note on the reception counter,takes a key and goes
to inspect the room located up the stairs on the third floor.
The hotel owner takes the banknote in hurry and rushes to his meat supplier to whom he owes E100.
The butcher takes the money and races to his supplier to pay his debt.
The wholesaler rushes to the farmer to pay E100 for pigs he purchased some time ago.
The farmer triumphantly gives the E100 note to a local prostitute who gave him her services on credit.
The prostitute goes quickly to the hotel, as she owed the hotel for her hourly room use to entertain clients.
At that moment, the rich Russian is coming down to reception and informs the
hotel owner that the proposed room is unsatisfactory and takes his E100 back and departs.
There was no profit or income. But everyone no longer has any debt and the small town people
look optimistically towards their future.
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