Helga is the proprietor of a bar in Detroit ..
She realizes that virtually all of her customers are unemployed
alcoholics and, as such, can no longer afford to patronize her bar.
To solve this problem, she comes up with a new marketing plan that
allows her customers to drink now, but pay later.
Helga keeps track of the drinks consumed on a ledger (thereby
granting the customers' loans).
Word gets around about Helga's "drink now, pay later" marketing
strategy and, as a result, increasing numbers of customers flood
into Helga's bar. Soon she has the largest sales volume for any bar
in Detroit .
By providing her customers freedom from immediate payment demands,
Helga gets no resistance when, at regular intervals, she
substantially increases her prices for wine and beer, the most
consumed beverages.
Consequently, Helga's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes
that these customer debts constitute valuable future assets and
increases Helga's borrowing limit.
He sees no reason for any undue concern, since he has the debts of
the unemployed alcoholics as collateral!!!
At the bank's corporate headquarters, expert traders figure a way
to make huge commissions, and transform these customer loans into
DRINKBONDS.
These "securities" then are bundled and traded on international
securities markets.
Naive investors don't really understand that the securities being
sold to them as "AA" "Secured Bonds" really are debts of unemployed
alcoholics. Nevertheless, the bond prices continuously climb!!!,
and the securities soon become the hottest-selling items for some
of the nation's leading brokerage houses.
One day, even though the bond prices still are climbing, a risk
manager at the original local bank decides that the time has come
to demand payment on the debts incurred by the drinkers at Helga's
bar. He so informs Helga.
Helga then demands payment from her alcoholic patrons, but being
unemployed alcoholics they cannot pay back their drinking debts.
Since Helga cannot fulfill her loan obligations she is forced into
bankruptcy. The bar closes and Helga's 11 employees lose their jobs.
Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset
value destroys the bank's liquidity and prevents it from issuing
new loans, thus freezing credit and economic activity in the
community.
The suppliers of Helga's bar had granted her generous payment
extensions and had invested their firms' pension funds in the BOND
securities. They find they are now faced with having to write off
her bad debt and with losing over 90% of the presumed value of the
bonds.
Her wine supplier also claims bankruptcy, closing the doors on a
family business that had endured for three generations, her beer
supplier is taken over by a competitor, who immediately closes the
local plant and lays off 150 workers. Fortunately though, the bank,
the brokerage houses and their respective executives are saved and
bailed out by a multibillion dollar no-strings attached cash
infusion from the government.
The funds required for this bailout are obtained by new taxes
levied on employed, middle-class, nondrinkers who have never been
in Helgas bar.
Now do you understand?
She realizes that virtually all of her customers are unemployed
alcoholics and, as such, can no longer afford to patronize her bar.
To solve this problem, she comes up with a new marketing plan that
allows her customers to drink now, but pay later.
Helga keeps track of the drinks consumed on a ledger (thereby
granting the customers' loans).
Word gets around about Helga's "drink now, pay later" marketing
strategy and, as a result, increasing numbers of customers flood
into Helga's bar. Soon she has the largest sales volume for any bar
in Detroit .
By providing her customers freedom from immediate payment demands,
Helga gets no resistance when, at regular intervals, she
substantially increases her prices for wine and beer, the most
consumed beverages.
Consequently, Helga's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognizes
that these customer debts constitute valuable future assets and
increases Helga's borrowing limit.
He sees no reason for any undue concern, since he has the debts of
the unemployed alcoholics as collateral!!!
At the bank's corporate headquarters, expert traders figure a way
to make huge commissions, and transform these customer loans into
DRINKBONDS.
These "securities" then are bundled and traded on international
securities markets.
Naive investors don't really understand that the securities being
sold to them as "AA" "Secured Bonds" really are debts of unemployed
alcoholics. Nevertheless, the bond prices continuously climb!!!,
and the securities soon become the hottest-selling items for some
of the nation's leading brokerage houses.
One day, even though the bond prices still are climbing, a risk
manager at the original local bank decides that the time has come
to demand payment on the debts incurred by the drinkers at Helga's
bar. He so informs Helga.
Helga then demands payment from her alcoholic patrons, but being
unemployed alcoholics they cannot pay back their drinking debts.
Since Helga cannot fulfill her loan obligations she is forced into
bankruptcy. The bar closes and Helga's 11 employees lose their jobs.
Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset
value destroys the bank's liquidity and prevents it from issuing
new loans, thus freezing credit and economic activity in the
community.
The suppliers of Helga's bar had granted her generous payment
extensions and had invested their firms' pension funds in the BOND
securities. They find they are now faced with having to write off
her bad debt and with losing over 90% of the presumed value of the
bonds.
Her wine supplier also claims bankruptcy, closing the doors on a
family business that had endured for three generations, her beer
supplier is taken over by a competitor, who immediately closes the
local plant and lays off 150 workers. Fortunately though, the bank,
the brokerage houses and their respective executives are saved and
bailed out by a multibillion dollar no-strings attached cash
infusion from the government.
The funds required for this bailout are obtained by new taxes
levied on employed, middle-class, nondrinkers who have never been
in Helgas bar.
Now do you understand?
