Global financial crisis simplified

BUBBLES.....

This is a simple story. It may sound confusing in the beginning, but read on, it gets simpler...

Read carefully....

There is a small island.It has three inhabitants.Tom, Dick and Teresa.

Dick and Teresa have no land, but have a dollar each.

Tom has no money, but the island belongs to him.

Dick has a desire, he wants to own the island......

Dick gives his one dollar to Tom and buys the island.

Now : Dick has an island worth one dollar, Tom and Teresa have a dollar each.

The total net worth of the island is three dollars.

When Teresa sees this, she has a desire to own the island, but she knows Dick will not sell it for one dollar. She borrows one dollar from Tom and buys the island from Dick for two dollars.

Now..........

Dick has two dollars.
Teresa has an island worth two dollars but she has a one dollar loan to be paid to Tom so her net worth is one dollar.
Tom has one dollar receivable from Teresa.

The total net worth of the island is now four dollars.

Now.....

Tom feels bad for selling the island and wants to buy it back. He promptly borrows two dollars from Dick and buys the island for three dollars.Two dollars cash and one dollar adjusted against the debt Teresa owes Tom.

Now....

Dick's net worth is the two dollars receivable from Tom.
Teresa has two dollars.
Tom has a property worth three dollars but debts of two dollars, so net worth is one dollar.

The total net worth of the island is now five dollars.

Now the bubble is becoming bigger, everyone's net worth is increasing, everyone is happy !!!

One day, Dick started getting worried, "will the price of the island go up like this ? Will Tom return my two dollars ? "

Tom and Teresa also started thinking, "how can this island be worth three dollars ? Is it not an inflated price ? The actual price is only one dollar !"

Now, nobody wants the island !!!

The bubble has broken !!!

The island price came down to one dollar.

Tom declared bankruptcy and gave the island back to Dick.

Now...

Dick has an island worth one dollar !
Teresa has two dollars !
Tom has no dollars and no island !

The total net worth of the island has come back to three dollars !!!

THE END.