Finance made simple
Nick Spalding
The financial crisis explained in simple terms:
Heidi is the proprietor of a bar in Berlin. In order to increase sales,
she decides to allow her loyal customers - most of whom are unemployed
alcoholics - to drink now but pay later. She keeps track of the drinks
consumed on a ledger (thereby granting the customers loans).
Word gets around and as a result increasing numbers of customers flood
into Heidi's bar.
Taking advantage of her customers' freedom from immediate payment
constraints, Heidi increases her prices for wine and beer, the
most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank
recognizes these customer debts as valuable future assets and increases
Heidi's borrowing limit.
He sees no reason for undue concern since he has the debts of the
alcoholics as collateral.
At the bank's corporate headquarters, expert bankers transform these
customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These
securities are then traded on markets worldwide. No one really
understands what these abbreviations mean and how the securities are
guaranteed. Nevertheless, as their prices continuously climb, the
securities become top-selling items.
One day, although the prices are still climbing, a risk manager
(subsequently of course fired due his negativity) of the bank decides
that slowly the time has come to demand payment of the debts incurred by
the drinkers at Heidi's bar.
However they cannot pay back the debts.
Heidi cannot fulfil her loan obligations and claims bankruptcy.
DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better,
stabilizing in price after dropping by 80 %.
The suppliers of Heidi's bar, having granted her generous payment due
dates and having invested in the securities are faced with a new
situation. Her wine supplier claims bankruptcy, her beer supplier is
taken over by a competitor.
The bank is saved by the Government following dramatic round-the-clock
consultations by leaders from the governing political parties.
The funds required for this purpose are obtained by a tax levied on the
non-drinkers.
--
Nick Spalding
actually at nostradamus.net
wrote:
Why not try an alternate ending: The government decides to not honor
its promise of deposit insurance and lets the bank fail, which wipes
out the funds of all the non-drinkers.
one10...@bellsouth.net
Yep, that's just about it. They just left out the part about how
Heidi was required by the government to provide drinks to the drunks
without regard to their ability to pay because everyone should be able
to indulge ... it's the American dream. Because the drunks were not
required to make downpayments on their bar tab, they had no equity and
therefore they didn't feel compelled to attempt to pay Heidi back when
they suddenly found themselves unemployed, but instead just walked
away from their committment to Heidi. After all, they had nothing to
lose. Poor Heidi. I could almost go for bailing her out, since the
government required her to make ill-advised loans to un-creditworthy
drunks.