I miss you Sam!!

I miss you Sam!!
I miss you Sam!!

Thursday, March 5, 2009

Financial Crisis - The How and Why

Linda is the proprietor of a bar in Cork. 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 Linda's bar. Taking advantage of her customers' freedom from immediate payment constraints, Linda 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 Linda'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 to his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Linda's bar. However they cannot pay back the debts. Linda can not 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 Linda'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 (and vested interests).

The funds required for this purpose are obtained by a tax levied on the non-drinkers.
Hmmmm sound familiar? Maybe substituting a bar instead of a bank??? Nah, must be my imagination.

And the vocabulary word for the day?

LIQUIDITY: When you look at your investments and wet your pants...

Finally explanations I understand...

11 comments:

Susan at Stony River said...

Now it's making much more sense: and that's an EXCELLENT word for the day! I'm going to go pass it on (and try to keep a straight face while I'm at it) Thanks, Sylvia!

Galla Creek said...

So interesting...would this be a parable? Teaching like Jesus die?

Galla Creek said...

Should be Jesus DID...can't type.

Dragonstar said...

Excellent!

Unknown said...

This is great. Thanks for explaining our financial crisis so well. It also made me thirsty. But I shall pay as I drink.

I'll be back to read more.

Jane Hards Photography said...

This is brilliant and I am going to repeat this down the pub.

Bagman and Butler said...

Aha! So that's how it happened. And being a former, now recovered alcoholic myself, I have both caused and solved the problem. Now I'm broke but it doesn't matter because I can't drink anymore anyhow.

Anonymous said...

Great! Dread alcoholics.Bravo! The pics are lovely! Wish I could upload my photos to my blog. But I am a poet!
Smita.

Anonymous said...

Brilliant! Puts it into easy to comprehend terms even re publicans can understand!

Linda Reeder said...

I makes complete sense now.

Sujatha Bagal said...

Now that you put it that way... I don't know whether to laugh or cry!

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