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 unemployedalcoholics - to drink now but pay later. She keeps track of the drinksconsumed on a ledger (thereby granting the customers loans).Word gets around and as a result increasing numbers of customers floodinto Heidi's bar.Taking advantage of her customers' freedom from immediate paymentconstraints, Heidi increases her prices for wine and beer, themost-consumed beverages.. Her sales volume increases massively.A young and dynamic customer service consultant at the local bankrecognizes these customer debts as valuable future assets and increasesHeidi's borrowing limit.He sees no reason for undue concern because he has the promissory notesof Heidi's customers as collateral.At the bank's corporate headquarters, expert bankers transform thesecustomer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. Thesesecurities are then sold and traded on markets worldwide. No one reallyunderstands what these abbreviations mean and how the securities areguaranteed. Nevertheless, as their prices continuously climb, thesecurities become top-selling items.One day, although the prices are still climbing, a risk manager of thebank, (subsequently fired due his negativity), decided that the timehas come to start demanding payment from Heidi for the debts incurred bythe drinkers at Heidi's bar.Unfortunately Heidi's customers cannot pay back any of their debts toHeidi.Heidi cannot fulfill her loan obligations to the bank and claimsbankruptcy.DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better,stabilizing in price after dropping by only 80%.The suppliers of Heidi's bar, having granted her generous payment termsand also having invested in the securities are faced with a new anddesperate situation. Her wine supplier claims bankruptcy and her beersupplier is taken over by a competitor.The bank is saved by the Government following dramatic round-the-clockconsultations by leaders from the governing political parties. They cameup with a miraculous rescue plan that saved the bank.The funds required for this massive rescue are obtained by levying anew tax on all the non-drinkers..Finally. An explanation I understand.
- ▼ March (4)
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