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-onsumed 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 fulfill 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 ....
Marvin, as you can imagine, women's basketball is BIG here in Brookings right now. All the nay sayers that didn't want SDSU going division 1 are eating crow about now.
Originally Posted by Marvin S
You ask how many of my ideology will understand it? I wonder how many people period will understand it. If you were to go back and look at my posts late last summer and fall, this is what I was talking about. The gooberment or private individuals can buy up these toxic assets, but the sellers of these CDS's will still be on the hook for what they owe to those who they sold this "insurance" to. Scary...
And by the way, don't remind me.
My main gripe with Geithner is that he is a Wall St insider. I have no doubt that he is brilliant and understands the problems we now face but he comes from inside the bubble that is insulated from the real world. On a daily basis it is demonstrated that these executives really don't get what is going on. How else do you explain this culture where they believe there is no problem receiving these gigantic bonuses even while driving there company along with the rest of America into the ground. Where else in America is that happening? Then I read today in an article in the Wall St. Journal that the bankers are complaining to the Obama administration about the legislation taxing these bonuses and that if they are not going to take care of that problem, well, we are not going to help you with yours. Sounds like extortion to me. What ever happened that we all have to sacrifice a little in these difficult times?
Originally Posted by Marvin S
It is this whole mindset that is poisoning the well. I am sure there is someone who is not from Wall St. that understands the problem as well as Geithner and see's it for what it is: A problem of American confidence,political incompetence and Wall St. culture .
In the same vein, these guys will shed cash on anyone that appears to be a winner. They follow the ideology of their wallets.
Originally Posted by cotts135