Concept of Bankruptcy- Explained.

This is something I came across somewhere recently. It illustrates the concept of bankruptcy brilliantly and is a pointer to the present ( or are we past it ?) economic crisis. It's slightly long considering the nanosecond attention most of us have these days but its worth it!.

Bankruptcy for Dummies.

Once there was a little island country. The land of this country was
the tiny island itself. The total money in circulation was 2 dollars
as there were only two pieces of 1 dollar coins circulating around.1) There were 3 citizens living on this island country. A owned the
land. B and C each owned 1 dollar.

2) B decided to purchase the land from A for 1 dollar. So, now A and C
own 1 dollar each while B owned a piece of land that is worth 1
dollar.

* The net asset of the country now = 3 dollars.

3) Now C thought that since there is only one piece of land in the
country, and land is non producible asset, its value must definitely
go up. So, he borrowed 1 dollar from A, and together with his own 1
dollar, he bought the land from B for 2 dollars.

*A has a loan to C of 1 dollar, so his net asset is 1 dollar.
* B sold his land and got 2 dollars, so his net asset is 2 dollars.
* C owned the piece of land worth 2 dollars but with his 1 dollar debt
to A, his net residual asset is 1 dollar.
* Thus, the net asset of the country = 4 dollars.

4) A saw that the land he once owned has risen in value. He regretted
having sold it. Luckily, he has a 1 dollar loan to C. He then borrowed
2 dollars from B and acquired the land back from C for 3 dollars. The
payment is by 2 dollars cash (which he borrowed) and cancellation of
the 1 dollar loan to C. As a result, A now owned a piece of land that
is worth 3 dollars. But since he owed B 2 dollars, his net asset is 1
dollar.

* B loaned 2 dollars to A. So his net asset is 2 dollars.
* C now has the 2 coins. His net asset is also 2 dollars.
* The net asset of the country = 5 dollars. A bubble is building up.

(5) B saw that the value of land kept rising. He also wanted to own
the land. So he bought the land from A for 4 dollars. The payment is
by borrowing 2 dollars from C, and cancellation of his 2 dollars loan
to A.

* As a result, A has got his debt cleared and he got the 2 coins. His
net asset is 2 dollars.
* B owned a piece of land that is worth 4 dollars, but since he has a
debt of 2 dollars with C, his net Asset is 2 dollars.
* C loaned 2 dollars to B, so his net asset is 2 dollars.

* The net asset of the country = 6 dollars; even though, the country
has only one piece of land and 2 Dollars in circulation.

(6) Everybody has made money and everybody felt happy and prosperous.

(7) One day an evil wind blew, and an evil thought came to C’s mind.
“Hey, what if the land price stop going up, how could B repay my loan.
There is only 2 dollars in circulation, and, I think after all the
land that B owns is worth at most only 1 dollar, and no more.”

(8) A also thought the same way.

(9) Nobody wanted to buy land anymore.

* So, in the end, A owns the 2 dollar coins, his net asset is 2 dollars.
* B owed C 2 dollars and the land he owned which he thought worth 4
dollars is now 1 dollar. So his net asset is only 1 dollar.
* C has a loan of 2 dollars to B. But it is a bad debt. Although his
net asset is still 2 dollars, his Heart is palpitating.
* The net asset of the country = 3 dollars again.

(10) So, who has stolen the 3 dollars from the country ? Of course,
before the bubble burst B thought his land was worth 4 dollars.
Actually, right before the collapse, the net asset of the country was
6 dollars on paper. B’s net asset is still 2 dollars, his heart is
palpitating.

(11) B had no choice but to declare bankruptcy. C as to relinquish his
2 dollars bad debt to B, but in return he acquired the land which is
worth 1 dollar now.

* A owns the 2 coins, his net asset is 2 dollars.
* B is bankrupt, his net asset is 0 dollar. (He lost everything)
* C got no choice but end up with a land worth only 1 dollar

* The net asset of the country = 3 dollars.

There is however a redistribution of wealth.
A is the winner, B is the loser, C is lucky that he is spared.
A few points worth noting -

(1) When a bubble is building up, the debt of individuals to one
another in a country is also building up.
(2) This story of the island is a closed system whereby there is no
other country and hence no foreign debt. The worth of the asset can
only be calculated using the island’s own currency. Hence, there is no
net loss.
(3) An over-damped system is assumed when the bubble burst, meaning
the land’s value did not go down to below 1 dollar.
(4) When the bubble burst, the fellow with cash is the winner. The
fellows having the land or extending loan to others are the losers.
The asset could shrink or in worst case, they go bankrupt.
(5) If there is another citizen D either holding a dollar or another
piece of land but refrains from taking part in the game, he will
neither win nor lose. But he will see the value of his money or land
goes up and down like a see saw.
(6) When the bubble was in the growing phase, everybody made money.
(7) If you are smart and know that you are living in a growing bubble,
it is worthwhile to borrow money (like A ) and take part in the game.
But you must know when you should change everything back to cash.
(8) As in the case of land, the above phenomenon applies to stocks as well.
(9) The actual worth of land or stocks depend largely on psychology

PS: I m still trying to find the original author. This was just saved on my hard disk.

My new phone- the Sony Ericsson W350i

Ok. I went out and bought a new phone. Finally. It was long awaited by a lot people, excluding me. While the world was frantically buying phones with features of very little use, throwing out perfectly working, and convenient phones for fanciful but cumbersome ones, I was happily putting my trusted old Nokia 2600 to good use.

It served me well for 4 long years now- I never had an issue with battery life, though I had to get the exterior panel changed twice (it had more to with my rough handling of the phone than anything else). But of late a very peculiar problem cropped up. The battery was growing- literally. It was expanding and pushing the casing out. Now that was serious. I had heard enough reports of batteries exploding and I certainly didn’t want to be one of those unfortunate poor souls to have their ear, face or any other body part blown off my a Li Ion battery.

So I went off to buy a phone- to indulge in an activity, because of the involvement of millions of people in which, blokes like me make a comfortable living ( my company makes cell phone chips btw) . I had a look at the phones on display and was actually bewildered at the array of choices present. You had phones that could just about make and receive calls, and you had those which took photos, fetched your mail, played your music, and still let you make calls. But selecting a phone was easy- I wanted a flip phone, with camera, Bluetooth, music player and radio. I chose a model which offered all these at possibly the lowest price and haggled with the guy at the sales counter to give me a good price for my existing “explosive” phone, which he did. It was closing time and I figured out he hadn’t managed that day’s sales target and was willing to stretch the price a little bit in my favor. It was the Sony Ericsson W350i. The ‘w’ was indicative of Sony’s Walkman heritage and I thought out it would be a promising music player also.

When I came home the first thing I noticed about the phone was its size. Sure size zero was quite the rage with females some time ago, but this was taking things really too far, besides I didn’t want my phone to be female. The phone was really slim, and hardly had the width of a match box, which I actually found convenient considering that I have small hands. It has a flap which when closed doubles up as the user interface for the music player. I totally loved this concept. I really didn’t have to open up the phone and use the myriad keys to play music- all I wanted to do was pause, play, next and stop and these were all there as big chunky buttons right there on the flap. Very neat indeed.

One very useful thing about the phone is that when the flap is closed (when you are not using the phone’s key pad) it is in the music player mode. So you can use it just like an iPod. The sound quality is excellent with the bass coming out loud and clear. This I think is more to do with the superior headphones that are provided with the handset. Another useful feature is the ability to directly plug in a 3.5 mm audio jack using a small adapter. This is extremely convenient when you want to hook up the phone with that expensive pair of headphones you bought or a larger speaker system.

The other things about the phone are fairly standard. The radio is good, without giving a pause while changing stations. My old Philips Nike device takes a long time to switch from one station to the other. The Bluetooth and USB connectivity are great. The menu is also fairly intuitive, which considering that it’s not from Nokia is quite surprising.

All in all, a great phone!!!. One more thing I did notice. Buying a new phone does make you happy, at least for a day! I guess that’s why mobile sales are zooming the world over.

Smoke Signals

While casually surfing the channels over the evening, I came across this song. Its by this band called summertime rocks and is called smoke signals. A really very unique genre of music it is. Something very hatke and deserves a good listen.

The video has kitsch animation, with very funky graphics, a far cry from the star laden videos we ve been subjected to ever since filmmakers realised item numbers will cover up their terrible film scripts.

The story behind it is also very interesting. 2 guys who used to make jingles thought of extending their music making beyond the 60 seconds of fame. They have also this very interesting concept called bluefrog which is a studio cum lounge bar come performance arena. Its open to anyone who wants to play good music and wat i really liked about the whole idea was the promoters' enthusiasm for making good music.

As an afterthought, kailash kher is brilliant as ever on the vocals for the song. Enjoy.

Outsourcing: Opinions from the other side.

There has been considerable debate of late about the merits/perils of outsourcing often generating rather contradictory arguments about outsourcing itself to its effects on the economy and society. Being an engineer, I have always been curious to know how the profession most affected by outsourcing reacts. I found a wonderful article on eetimes.com. It offered a unique perspective of outsourcing because it was written and commented mainly by westerners.


From what I could gauge from the article, Americans have been badly affected because their once prized engineering jobs are off shored to countries like India or China where labor is cheaper. While some of them suggest drastic measures like banning H1B visas, most of the others are more reflective and objective on the issue. They agree that its something that they have to fix with their own system- their education system is too expensive with the result that engineers need to be paid far more than their peers in developing countries. Some also lament that their own talent pool is diminishing with fewer kids choosing engineering with the result that the US is loosing its technological edge it held over the rest of the world for such a long time.

Do take a look at the article. I found it a fascinating read during what had been till then a rather lackluster day.