Sunday, June 3, 2012

Charge and Discharge - a Story


The Fable of WeBB and the Boat Notes”

Once upon a time there was a Wealthy Boat Builder, “WeBB”, descendent of a long line of renown boat builders, and heir apparent to a great boat building fortune. Business is good. WeBB takes on contracts to build boats, many boats. He accepts payments in advance and issues receipts/notes to the purchasers to be exchanged for a finished boat at a later date.

These “boat notes” are “charged” when the purchaser accepts them for value in lieu of an actual boat, so the note represents the value of the boat. The note/receipt is proof of payment and evidence of ownership of a prepaid boat. The note can be traded and the holder in due course can redeem it for face value. 

(Think of a boat note as being like a coat check ticket. The holder of the ticket is the owner-in-fact of the item that the ticket represents. The holder of the coat, the coat checker, is just an accommodating party, allowing the owner to store and later retrieve his property by presenting the ticket.) 

The “charged” boat note represents the first half of the transaction.  In order to complete the transaction and satisfy the obligation the note must be “discharged”.  Discharge occurs when the note is returned to the issuer, WeBB, and redeemed/exchanged for the prepaid product, a boat. Charge and discharge completes the circuit and the transaction is complete.

After a while, WeBB begins to make so much money issuing boat notes, he decides to change careers, from being a boat builder to an boat note issuer. He's clever at “spin” so he convinces the note holders that notes represent the value of a boat rather than an actual boat, and they can trade the notes amongst themselves and receive an equivalent value of products and services in exchange from each other.

With WeBB's encouragement, the towns people start using the notes like a form currency, a means of exchange, and eventually forget that they were originally receipts to be redeemed for prepaid boats. From WeBB's perspective, as long as the charged notes are circulating and being traded instead of being redeemed for boats, WeBB can continue his charade of wealth and power without anyone suspecting there are no boats behind the notes.

So WeBB's new business is issuing boat notes, which has made him appear fabulously wealthy. (Think of the coat checker who's collection of coats keeps growing. The coat checker seems to possess many coats, until the ticket holders ask for their coats back!)

WeBB continues to print up as many notes as he wants, to buy whatever he wants. He makes boat note loans (even though there are still no boats) and collects interest on the loans. He gambles with the notes and just prints off more when he loses. He uses the notes to buy up all the land and material assets he can get his hands on.  His unbounded greed will not be satisfied until he owns everything.

The locals become more and more impoverished because WeBB continues to pull products and services out of the local economy without putting anything of value back in circulation. Everyone is in debt and holding worthless paper receipts, while WeBB ends up owning all the material assets once owned by the people.

The people become desperate and gather together to ask the Great Oracle for help. What can be done to fix this situation? The message is revealed in a single word – DISCHARGE.

Suddenly the eyes of the people are opened and they wake up from their collective hypnosis. The people confront WeBB en masse with their receipts. WeBB has no way to honor the notes and discharge the debt. He is in dishonor, bankrupt, and revealed as a fraud. His ill gotten assets are confiscated and delivered back into the hands of the people and he is arrested and charged with theft and fraud and sent to prison.  The people regained control over their property and economy, and eventually, lived happily ever after.

THE END

2 comments:

  1. That Makes it Clear as Possible there, Thankhs

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  2. great analogy, i am enjoying your blog. i have done some research into money, what is it and how does it work. It is so obvious that something is desperately wrong. One man crying in the wilderness may get himself beheaded but people en mass could get the criminal cabal crucified and banned forever

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