The Financial Crisis Explained in Simple Terms...
Saw this on the U.K.’s Telegraph online newspaper…a little bit of Internet humor. Enjoy!
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 of the
bank, (subsequently of course fired due his negativity), 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
Finally an explanation I understand…
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