BANKING CRISIS IN TERMS YOU CAN UNDERSTAND
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 because he has the promissory notes of Heidi's customers as collateral.
At the bank's corporate headquarters, expert bankers transform these
customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These
securities are then sold and 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 of the
bank, (subsequently fired due to his negativity), decided that the time
has come to start demanding payment from Heidi for the debts incurred
by the drinkers at Heidi's bar.
Unfortunately Heidi's customers cannot pay back any of their debts to Heidi.
Heidi cannot fulfill her loan obligations to the bank and claims bankruptcy.
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 terms
and also having invested in the securities are faced with a new and
desperate situation. Her wine supplier claims bankruptcy and 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. They
came up with a miraculous rescue plan that saved the bank.
The funds required for this massive rescue are obtained by levying a new tax on all the non-drinkers.
Finally an explanation I understand....
