Explanation of Derivative Markets

Discussion in 'Jokes & Humor' started by Maurice, Jul 25, 2011.

  1. Maurice

    Maurice Bloody good bloke VIP Member

    Jun 25, 2009
    Likes Received:
    London England
    For Heidi read; Portugal, Ireland, Spain, USA, England etc.

    Heidi is the proprietor of a bar in Detroit. She realizes that
    virtually all 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 new marketing plan that allows her
    customers to drink now, but pay later. She 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

    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, the most
    consumed beverages. 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, ALKIBONDS and PUKEBONDS. These securities are then
    bundled and traded on international security markets. Naive investors
    don't really understand that the securities being sold to them as AAA
    secured bonds are really the debts of unemployed alcoholics.
    Nevertheless, the bond prices continuously climb, and the securities
    soon become the hottest-selling items for some of the nation's
    leading brokerage houses.

    One day, even though the bond prices are still 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 fulfil her loan obligations she is forced into
    bankruptcy. The bar closes and the eleven employees lose their jobs.

    Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%.
    The collapsed bond asset value destroys the banks liquidity and
    prevents it from issuing new loans, thus freezing credit and economic
    activity in the community.

    The suppliers of Heidi's bar had granted her generous payment
    extensions and had invested their firms' pension funds in the various
    BOND securities. They find they are now faced with having to write
    off her bad debt and with 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 multi-billion
    dollar no-strings attached cash infusion from their 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.

    Maurice, Jul 25, 2011
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  2. Maurice

    Zeus Moderator

    Jun 20, 2005
    Likes Received:
    That pretty much lays it out in laymen terms so anyone can understand what happened.
    Zeus, Jul 26, 2011
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