[Peace-discuss] The financial crisis explained in simple terms

[Morton K. Brussel]

Economics 101. This is from another list, but I thought it  
illuminating, and amusing?

Begin forwarded message:

> From: "Caroline Herzenberg" <carol at herzenberg.net>
> Date: March 6, 2009 7:43:34 PM CST
>
>
> .............................................
>
> 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.
>
> Finally an explanation I understand ......
>

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