If you put in booze terms then it might be easier to 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 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 Heidi's bar. However they cannot pay back the debts. Heidi
cannot 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 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.
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