How financial crisis occur, where cash or money go from the market,how boom and depression come, so here is answer asset bubble creation and asset bubble brust.

1. Hirel Patel & Sandip Patel
Hirel & Sandip

2. Hirel & Sandip

3. Mr. A Mr. B Mr. C
Hirel & Sandip

4.  The land of this
country was the tiny
island itself. The total
money in circulation
was 2 dollar as there
were only two pieces of
1 dollar coins
circulating around.
$1 $1
Hirel & Sandip

5. Mr. A  Mr. B  Mr. C
$1 $1
Hirel & Sandip

6. Mr. A  Mr. B
$1
B decided to purchase the land from A for 1
dollar.
Hirel & Sandip

7. Mr. A  Mr. B  Mr. C
$1 = $1
$1
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8. C thought that since there is only one piece of land in the
country and land is non produceable 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 dollar.
 Mr. B $1+$1=$2  Mr. C
 Mr. A Hirel & Sandip

9.  Mr. A
B sold his land and got 2 dollar, so his net asset
is 2 dollar
 Mr. B
C owned the piece of land worth 2 dollar but with hi
1 dollar debt to A, his net asset is 1 dollar.
 Mr. C
The net asset of the country = 4 dollar.Hirel & Sandip

10. A saw that the land he once owned has risen in value. He
regretted selling it. Luckily, he has a 1 dollar loan to C. He
then borrowed 2 dollar from B and acquired the land back
from C for 3 dollar. The payment is by 2 dollar cash (which
he borrowed) and cancellation of the 1 dollar loan to C.
 Mr. C $2+$1=$3  Mr. A
 Mr. B Hirel & Sandip

11.  Mr. A
B loaned 2 dollar to A. So his net asset is 2 dollar.
 Mr. B
C now has the 2 coins. His net asset is also 2 dollar.
 Mr. C
The net asset of the country = 5 dollar. A bubble is building up.
Hirel & Sandip

12. 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 dollar.
The payment is by borrowing 2 dollar from C and
cancellation of his 2 dollar loan to A.
 Mr. A
$2+$2=$4  Mr. B
 Mr. C Hirel & Sandip

13.  Mr. A
B owned a piece of land that is worth 4 dollar but since
he has a debt of 2 dollar with C, his net Asset is 2
dollar.
 Mr. B
C loaned 2 dollar to B, so his net asset is 2 dollar.
 Mr. C
The net asset of the country = 6 dollar. Even
though, the country has only one piece of land and 2
Dollar in circulation. Hirel & Sandip

14. Everybody has made money and everybody felt
happy and prosperous.
 One day an evil wind blowed. An evil thought
came to C's mind. quot;Hey, what if the land price
stop going up, how could B repay my loan.
There is only 2 dollar in circulation, I think after
all the land that B owns is worth at most 1
dollar only. quot;A also thought the same.
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15.  Mr. A
B owed C 2 dollar and the land he owned which he
thought worth 4 dollar is now 1 dollar. His net asset
become -1 dollar.
 Mr. B
C has a loan of 2 dollar to B. But it is a bad debt. Although
his net asset is still 2 dollar, his Heart is palpitating.
 Mr. C
The net asset of the country = 3 dollar again. Hirel & Sandip

16.  Who has stolen the 3 dollar from the country? Of
course, before the bubble burst B thought his
land worth 4 dollar.
 Actually, right before the collapse, the net asset
of the country was 6 dollar in paper. his net
asset is still 2 dollar, his heart is palpitating. The
net asset of the country = 3 dollar again.
 B had no choice but to declare bankruptcy. C as
to relinquish his 2 dollar bad debt to B but in
return he acquired the land which is worth 1
dollar now.
Hirel & Sandip

17.  Mr. A
B is bankrupt, his net asset is 0 dollar. ( B lost
everything )
 Mr. B
C got no choice but end up with a land worth only 1 dollar (C
lost one dollar)
 Mr. C
The net asset of the country = 3 dollar.Hirel & Sandip

18. A is the winner. A owns the 2 coins $1 $1
 Mr. A
B is the loser. B is bankrupt
 Mr. B
C is lucky that he is spared.
End up with a land worth only 1 dollar
 Mr. C Hirel & Sandip

19. A few points worth noting
 When a bubble is building up, the debt of individual in a
country to one another is also building up.
 This case of the island is a close 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.
 An over-damped system is assumed when the bubble burst,
meaning the land's value did not go down to below 1 dollar.
 When the bubble burst, the fellow with cash is the winner. The
fellows having the land or extending loan to others are the
loser. The asset could shrink or in worst case, they go
bankrupt.
Hirel & Sandip

20. A few points worth noting
 When the bubble was in the growing phase, everybody
made money.
 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.
 Instead of land, the above applies to stocks as well.
 The actual worth of land or stocks depend largely on
psychology
Hirel & Sandip

21. Thank You
By
Hirel Patel & Sandip Patel
hiraljk@yahoo.co.in
sandip_jp@yahoo.co.in
Hirel & Sandip