Why Capitalism Fails

A Caldari woman named Carver is the proprietor of a bar within the State. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. Times are tough for most lower class Caldari after all. To solve this problem she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Carver keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans).

Word gets around about Carver’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Carver’s bar. Soon she has the largest sales volume for any bar in town.

By providing her customers freedom from immediate payment demands Carver gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer – the most consumed beverages.

Consequently, Carver’s gross sales volumes and paper profits increase massively. A young and dynamic vice-president at the local megacorp recognizes that these customer debts constitute valuable future assets and increases Carver’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral.

He is rewarded with a six figure bonus.

At the megacorp’s corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These “securities” are then bundled and traded on all Empire markets.

Naive investors don’t really understand that the securities being sold to them as “Secured Bonds” are really debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb and the securities soon become the hottest-selling items for some of the galaxy’s leading brokerage houses.

The traders all receive a six figure bonus.

One day, even though the bond prices are still climbing, a risk manager at the original local megacorp decides that the time has come to demand payment on the debts incurred by the drinkers at Carver’s bar. He so informs Carver. Carver then demands payment from her alcoholic patrons but, being unemployed alcoholics, they cannot pay back their drinking debts. Since Carver cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and Carver’s 11 employees lose their jobs.

Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the megacorp’s liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Carver’s bar had granted her generous payment extensions and had invested their firms’ pension funds in the DRINKBOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations; her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the megacorp, the brokerage houses and their respective executives are saved and bailed out by a multibillion isk no-strings attached cash infusion from the Caldari government.

They all receive six a figure bonus.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who’ve never been in Carver’s bar.

Now do you understand?

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12 responses to “Why Capitalism Fails

  1. The issue with calling this “capitalism” is that a true Capitalistic government (as I sense the Caldari wouldnt be, I would consider almost more socialist) would not have bailed out the megacorp. It, like any of the other businesses, should have been allowed to fail.

    I feel the same way about our current situation in the US. The bailouts (Bush AND Obama) should never have been allowed to happen. “Too big to fail” is a crock of shit. In the case of the auto industry, the economy tanked. GM and (to a lesser extent) Chrysler made some very bad business decisions, and asked for iskies from the Government. With no bailout, those companies would have failed, and someone else would have invested, buying the remainder of the business, then hopefully making better business decisions, and therefore resuscitating the brand.

    In the case of the financial industry, instead of buying the name, a stronger bank would have just bought out the loans, then turning those to either take a loss from or make a profit by working with their new customers.

    Government intervention in most cases takes us farther and farther away from capitalism, and bad decisions will continue to be rewarded at the highest level until an end is put to that.

    • I actually agree with you all around. Today’s insight was more to explain what really happens for those that may not have an understanding of how it affects us all.

    • That article is pretty terrible. You can’t create and run a business independent from the society in which you live.

      You didn’t write a check for the schooling of your employees so they knew how to get things done, or the farmers who grow food so that your urban hippie customers even exist as a demographic, or the police who provide consequences to others who want to steal your stuff.

      You didn’t reach into your pocket to build the fire stations and sewers and roads, or pay for the urban planners five decades ago whose city ordinances stopped an explosives factory setting up shop next to your stores.

      You didn’t, but others did on your behalf. Other people, and the government, using your money.

      Rail against wasteful government spending all you want, but don’t for a minute think that your taxes haven’t bought you the civilisation you’re currently enjoying. And remember that what you consider ‘wasteful’ is just that; your opinion.

  2. Caldari 4 Lyfe.

    But seriously, good point. Although I’m not sure how much of the problem lies with ‘capitalism’ and how much lies with people being stupid, greedy, and shortsighted.

      • No, he defined the only version of “capitalism” that you’ve ever experienced. If done right, it works. Unfortunately you have to rely on people. I’m repeating what Zenver said because he is right. People who are stupid, greedy and short-sighted are not true capitalists, just trolls.

        • It’s been a busy day, but I wanted to come back and let you know that I did enjoy the article. There’s a lot of people out there right now who feel like something is wrong, but have no idea where to start in finding out what it is. this was a very good intro.

        • Precisely.

          “There are no conflicts of interest among men who do not desire the unearned.”

          (Great article, Roc. Enjoyed and shared with many like minded individuals. Too bad the general public is so ignorant/apathetic.)

      • Haha. Was just thinking. Perhaps expecting capitalism to work is along the lines of CCP expecting the mercenary market place, or the FW changes to not be abused. 😀

  3. You forgot that in RL the government told the banks that they had to give the loans to people that couldn’t afford them or else it would be “discrimination.” So the “capitalist banks” didn’t want to do it, they were forced to do it by the government and told “it’s ok.”

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