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Heidi is the proprietor of a bar in Detroit.
She finds that most 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 to allow her customers to drink now and pay later.
Heidi keeps track of the drinks consumed on a ledger, thereby granting the customers loans.
Word gets around about Heidi's "drink now, pay later" marketing strategy,
and as a result increasing numbers of customers flood into Heidi's bar.
Soon she has the largest sales volume for any bar in Detroit.
By providing her customers freedom from immediate payment demands,
Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer.
Consequently, Heidi'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 Heidi'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 know the securities being sold to them as AAA secured bonds
really are debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb,
and the securities soon become the hottest-selling items at some of the nation's leading brokerage houses.
One day, even as 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 Heidi's bar.
He so informs Heidi.
Heidi then demands payment from her alcoholic patrons,
but being unemployed alcoholics they cannot pay back their drinking debts.
Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy.
The bar closes and Heidi's 11 employees lose their jobs.
DRINKBOND prices drop by 90% overnight.
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 Heidi's bar whihc had granted her generous payment extensions
had invested their firms' pension funds in the DRINKBOND securities.
They find they are now faced with having to write off her bad debt, 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 their cronies in government.
The funds required for this bailout are obtained by new taxes levied
on employed, middle-class, non-drinkers who have never been in Heidi's bar.
Now do you understand?
She finds that most 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 to allow her customers to drink now and pay later.
Heidi keeps track of the drinks consumed on a ledger, thereby granting the customers loans.
Word gets around about Heidi's "drink now, pay later" marketing strategy,
and as a result increasing numbers of customers flood into Heidi's bar.
Soon she has the largest sales volume for any bar in Detroit.
By providing her customers freedom from immediate payment demands,
Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer.
Consequently, Heidi'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 Heidi'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 know the securities being sold to them as AAA secured bonds
really are debts of unemployed alcoholics.
Nevertheless, the bond prices continuously climb,
and the securities soon become the hottest-selling items at some of the nation's leading brokerage houses.
One day, even as 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 Heidi's bar.
He so informs Heidi.
Heidi then demands payment from her alcoholic patrons,
but being unemployed alcoholics they cannot pay back their drinking debts.
Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy.
The bar closes and Heidi's 11 employees lose their jobs.
DRINKBOND prices drop by 90% overnight.
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 Heidi's bar whihc had granted her generous payment extensions
had invested their firms' pension funds in the DRINKBOND securities.
They find they are now faced with having to write off her bad debt, 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 their cronies in government.
The funds required for this bailout are obtained by new taxes levied
on employed, middle-class, non-drinkers who have never been in Heidi's bar.
Now do you understand?
