Friday, March 06, 2009

finally financial crisis explained so you can understand it

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


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 fulfill 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.

Finally an explanation we can all understand...

Thanks & Regards,

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