Please inform if this has been posted previously...
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 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 I understand .....
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 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 I understand .....
