this is not something i wrote, but hey haven’t found a more entertaining explanation đŸ˜€

Heidi is the proprietor of a bar in LA.

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 drunks loans).

Word gets around and as a result, a large numbers of drunks (read: customers) flood into Heidi’s bar.

Taking advantage of extending liberal credit facilities to her customers, Heidi increases prices of wine and beer, the most-consumed beverages. Her sales volumes increase rapidly.

A young and dynamic Customer Service Consultant of the local Investment Bank recognizes these customer debts as valuable future assets (being receivables) and increases Heidi’s borrowing limit. He sees no reason for undue concern since he has the debts (receivables) of the alcoholics as collateral.

At the Bank’s Corporate Headquarters, expert Investment 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 climb continuously, the securities become top-sellers.

One day, although the prices are still climbing, a (spoilsport) Risk Manager of the bank (subsequently of course fired, due to his negativity) decides that slowly the time has come to demand payment of the debts incurred by the drunks at Heidi’s bar.

However they cannot pay back the debts.

Facing high borrowing costs, poor cash flow and ‘nil’ repayment capability, Heidi cannot fulfil her loan obligations and files for bankruptcy.

DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.

The suppliers to Heidi’s bar, having granted her extended credit facilities, and having invested in the securities too, are faced with a credit crunch.

With liquidity being restrictive, and at hard terms, making it difficult to raise money to keep afloat, her wine supplier claims bankruptcy, and her beer supplier is taken over by a competitor through a share-swap deal (that did not involve any cash transaction).

The cash strapped Investment Bank on the verge of collapse, is saved by a Government bailout (can also be read as ‘Obama stimulus package’) following dramatic round-the-clock parleys between leaders of political parties and the corporate elite. To give a fillip to the faltering economy, they reasoned…..

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Cheers !

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