To continue that analogy, let’s say that those same 40% are buyers who used to buy your bread and resell it at a premium at the beach. They never actually had the money to pay for the bread, so they paid with credit cards, carried balances every month and used their profits to buy more bread from you. Business was so good that you raised prices every month in ‘phases’, and so did these resellers. By the end of 2005, bread stands could be seen on every street corner and prices were up a staggering 25% YOY. Some people were even buying bread and selling it on Craigslist for a profit!
Unfortunately, only 5% of the public could actually afford a loaf of bread by the summer of 2006, and many people began to go hungry. 50,000 people fled the city to go to states where bread costs were 75% cheaper. Massive numbers of loaves were placed for sale, only to sit and grow mold as the summer humidity kicked in. Some sellers discounted their loaves and sold, but most were too arrogant and greedy to even consider lowering their prices. Loaves rotted and beachfront stands were forced out of business. Bakeries provided the media with free loaves in exchange for positive stories about a ‘leveling’ in prices and a quick return to rising prices, to no avail.
By the end of 2007 bread prices were down 30%, millions of jobs were lost and many lives ruined at the hands of one of the greatest ponzi schemes ever witnessed. As he signed the foreclosure papers, the bakery owner cried, wondering why he was never able to get back those loyal 40% of his customers. Suddenly, he realized the answer. Those were never cusotmers to begin with – just bread flippers! Even those nice families never bought to eat the bread, but just to hold on to it and sell it for a profit!
