Snow Ears and the Jungle Crash

Snow Ears dragged his tired feet as fast as he could. It seemed that the more transactions he completed, the more will be waiting for his attention at the customer counter. It had been like that since Goose lowered the interest rate of bird's seed lending. It used to be that their flat rate was 10% annually, but now that it had been reduced to 6% the bird's seed market went berserk.

Goose's prediction, however, had paid off because the jungle market is now a frenzy of activity. The demand for bird's seeds currency is so high swallows are forced to forgo their diets of sunflower seeds, for the mint-field of Sunflowers could barely cater to Goose's bank. At the same time the price of nests, dens, burrows and cave walls skyrocketed. Almost everyone was investing in something. Even Snow Ear's burrow was being bombarded with flyers that tried to persuade him to sell his home and upgrade to a larger burrow in a more trendy area, which was closer to the farmer's lettuce field.

With all these thoughts jostling for attention between his upright tense ears, Snow Ears looked up to Goose's elevated office-nest and squeaked, "Mr. Goose! Mr. Goose! We are getting low on seeds. It will be another week before most of our payments are due."

"Did you make sure that everyone who borrows has enough collateral to cover their loans?"

"Yes, Mr. Goose. Their homes have been evaluated base on current market value. I gave them loans up to 80% of the value of their collateral as you advised."

"Well, the proper thing would be to raise interest rates again to slow down the demand, but that will impact the current market growth.

"In the meantime, sir, what shall I do about the seeds?"

"Send a message to the sparrows and tell them to deliver the new seeds ASAP."

Snow Ears immediately hopped to a pigeon and passed him the message.

In under an hour, the new seeds arrived, just in time to replenish the last seed in the bank.

Day after day, the situation continued, but suddenly 6 months later the demand stopped. Animals looked at the prices of homes and food and they realized that these were ridiculous. The majority began to downsize by eating cheaper food and living in smaller homes. When the price of homes stagnated, investors began to pull out and this brought down the price of homes. A 300,000 seeds nest dropped to 210,000 seeds. A 6 million seeds den slid down to 4.5 million.

Goose panicked. Most of the lien his bank held could no longer cover the loans of the owners. He instructed his workers to demand for lenders to pay the difference up front.

Lily Mouse had just made a loan of 800,000 seeds on her 1 million seeds home at 6% for 8 years. Snow Ears informed her that they need to readjust her loan to 600,000 to reflect the new value of her home which had dropped to 750,000 seeds. She must pay back the 200,000 seeds difference, else put up a new collateral to support the loan. Lily squeaked and screamed profanities in a frenzy of panic. How was she to find the extra 200,000 seeds. The bank had transferred the full amount to the seller last month.

Soon the rabbit's perky ears drooped just so he could muffle the abusive words, wailing and weeping of every other customer he had to talk with that day. That afternoon, the market crash.

Goose learned a hard lesson that day. He should never have lowered the interest rate because there was not enough materials to support the activity that would have been generated by his action. The lowered interest rate increased borrowings and in turn increased demands for homeownership. Since the units of homes did not increase, the huge amount of available currency had the effect of increasing the price of the homes. The initial mild inflation crescendo-ed into a bubble, and when the market came to its senses, it crashed.

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