The Recession: A Pungent Analysis

Why are we going into a recession?

Well, it all started with onions.

In the good old days, Rachel the Farmer sold a bag of onions to Harry the Haybaler for a bale of hay.  In the nearly as good old days, Rachel sold Harry the onions for a silver dollar.  In the almost as good old days, Rachel sold a bag of onions to Harry for a dollar bill, a piece of paper that the government declared was good for a dollar’s worth of silver.  In the not quite as good old days, Rachel sold onions to Harry for a check, a different kind of piece of paper that the bank said was worth the paper that the government said was good for a dollar’s worth of silver.  Next, the transaction was conducted with a check from the bank that was backed by the concept of a dollar, which the government guaranteed was real.  Next, the transaction was conducted with a credit card, so the bank bought the onions with Harry’s promise that he would pay it back.  Next, the transaction happened on the web, with Harry filling in blanks on a screen, and Rachel getting a direct deposit to her bank, and Harry receiving the onions via FedEx.

The process of buying onions had become so simple, and the money with which he bought them was so easy to borrow, that Harry became an onion speculator.  Because the price that Rachel charged Harry for the onions fluctuated a bit, Harry bought and sold onion futures.  Rachel then sold her barn to Harry, so he could have it as a shelter from all the taxes he had to pay because of his lucrative career in onion futures.   Rachel rented the barn back from Harry.  Harry paid her to store the onions in which he was speculating.  So Rachel stopped raising onions and became a property manager instead.  Harry created a derivative financial product consisting of his future possible increase in rental income from the barn, and with it the risk of lower rental income.  He sold this derivative to Rachel. Having also become comfortable in this brave new economic order, Rachel created an insurance company, and sold Harry a policy against any possible loss of value in that derivative, backing the policy with her onion-storage rental income.  Harry borrowed against this policy to buy more onions, which he paid Rachel to store in his barn.  The government, uninterested in regulating these arrangements, celebrated the achievements of Rachel and Harry as evidence of the virtues of the free market.

Harry built such a stockpile of onions that they piled up in the barn and started to rot.  Rachel demanded to re-negotiate the rent on the barn, saying “I’m not paying that kind of money for a place that smells as bad as this!”  Since the onions were rotten, their value evaporated. Harry had bet on price increases, so he faced financial ruin.  The rent went down, and Harry tried to collect on his insurance policy, but all Rachel gave him for his insurance payout was a bag of rotten onions.  Harry stopped paying Rachel to store the onions, so she went broke and stopped paying him rent altogether. Harry’s mortgage was bigger than the smelly barn was worth.  So he stopped making payments on the barn.  So the bank that held his mortgage went bust and with that, he lost his line of credit for buying onion futures. 

All Rachel and Harry had left between them were bags of rotting onions.

And that is why we are in this stinking recession!