A boy who ran a failed lemonade stand over the summer in Springfield, Illinois will receive money from the $700 billion Wall Street bailout package to compensate for his loss, a move the U.S. Treasury Department hopes will convince taxpayers that the bailout isn’t designed to help only the wealthy.

Jimmy Simpson, a 10-year-old entrepreneur who set up the lemonade stand in June and went bankrupt in late September after sales declined, will collect $1 million when the U.S. Treasury buys up his failed business assets.

“I started out with $25 in allowance money Mom and Dad gave me,” Jimmy said, referring to his parents Ellen and David Simpson. “I made a stand out of wood from an old shed and bought $20 worth of instant lemonade mix. Then I started selling lemonade, and people bought a lot of it.”

The collapse of Jimmy Simpson's lemonade stand bubble has led to hard times for the rest of the neighborhood children, who lost everything.

Jimmy’s initial success made him even more enthusiastic about his business prospects, so he ran a small advertisement in a Springfield newspaper in July. Sales tripled after that.

Soon other children noticed Jimmy’s success, and wanted lemonade stands of their own. Smelling another opportunity, Jimmy decided to acquire the capital needed to pursue his next business strategy.

“Dad helped me get a loan at the bank, and I used the money to build lemonade stands for the neighborhood kids,” he said. “I told them they could buy the stands over time by making weekly payments to me, plus 10 percent interest.”

Jimmy had essentially given the other children mortgage loans so they could buy their own lemonade stands. He then allowed wealthier children in the neighborhood to invest in his lemonade business, and paid them dividends from the revenue stream he received for the lemonade stand mortgages he held. Jimmy then took the investment money and loaned it to poorer children in the neighborhood at a 20 percent usury interest rate.

Soon Jimmy had no time to sell lemonade at all, so he sold his stand to another child and spent his time managing and analyzing his financial portfolio. While going over the books one day, Jimmy realized that his entire business model was based upon receiving mortgage payments from the other children running their lemonade stands. Should customers stop buying lemonade for any reason, his financial lemonade empire would collapse.

To hedge against possible lemonade stand mortgage defaults, Jimmy paid insurance money to a very wealthy neighborhood kid with a big allowance. In return, the rich kid agreed to pay Jimmy for any losses in his lemonade stand mortgages — losses that didn’t seem likely to ever happen because of strong lemonade sales throughout the summer. With the rich kid’s lemonade stand default swaps backing his success, Jimmy’s business continued to boom into late September.

Then disaster struck. Fall came and lemonade sales dried up. The neighborhood kids found themselves out of work and no longer able to make lemonade stand mortgage payments to Jimmy. Jimmy’s investors demanded their money back, but Jimmy didn’t have it because he had loaned it out to poor children in the neighborhood; they didn’t have the ability to pay all the money back at once when Jimmy tried to recall the loans. Worse still, the rich kid’s allowance wasn’t as big as Jimmy was led to believe, so Jimmy couldn’t collect enough insurance money to compensate for his lemonade stand mortgage losses. As a result of all these events, Jimmy’s lemonade stand bubble burst, and he went bankrupt.

Jimmy's parents say that their son, like Wall Street, knows how to turn lemons into lemonade.

Luckily for Jimmy, the mayor of Springfield had political connections that extended all the way to Washington, D.C. — so all was not lost. An Illinois senator made sure Jimmy’s business model was covered in the $700 billion Wall Street bailout package, so Jimmy and his parents have been informed that the bad lemonade stand assets will be purchased by the U.S. Treasury for $1 million.

Jimmy’s parents are proud of their son’s entrepreneurial ability, and are happy that he will receive the bailout money.

“Jimmy has a very good head for business,” his father David said. “Some people in the neighborhood say he is a swindler and shouldn’t get a dime for all his hard work this past summer, but they don’t understand how capitalism works. Jimmy played a crucial role in circulating money in the neighborhood, because he lent it out to help other children become entrepreneurs and achieve the American dream. Lending is crucial because it lubricates the engine of our economy. Jimmy wants to use the money to lubricate the other children again, but some people here think the money should be used to help the other children recover from their losses instead. That would be socialism, and that’s Un-American. The government should not interfere in the marketplace.”

(Lemon photo by André Karwath aka Aka, Wikipedia)

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