Mr. Malik is the owner of a bar in London, Green Street called the 'goodtime'
He soon realizes that mostly all of his customers are unemployed
college drop-outs and, as such, they can no longer afford to spend a lot of money in his bar.
To solve this problem, he comes up with a new marketing plan that
allows his customers to drink now, but pay later.
Mr. Malik keeps track of the drinks consumed on a tab (thereby granting
the customers loans).
Word gets around about Mr. Malik's "drink now, pay later" marketing strategy
and, as a result, increasing numbers of customers flood into Mr. Malik?s
Bar. Soon he has the largest sales volume for any bar in London.
By providing his customers freedom from immediate payment demands,
Mr. Malik gets no resistance when, at regular intervals, he substantially
increases his prices for drins and food, the most consumed products he sells.
Consequently, his 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
Mr. Malik?s borrowing limit.
He sees no reason for any undue concern because he has the debts of
the unemployed college drop outs 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" that are actually debts then are bundled and traded on international
securities markets.
Naive investors don't really understand that the securities being
sold to them as "AAA Secured Bonds" really are debts of unemployed
college drop-outs. 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 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 goodtime. So he informs him about it.
Mr. Malik then demands payment from his college drop-out customers. But, being
unemployed college drop-outs - they cannot pay back their drinking debts.
Since Mr. Malik cannot fulfill his loan obligations he is forced into
bankruptcy. The bar closes and his 7 employees lose their jobs.
Overnight, DRINKBONDS prices drop by 90% as they have no value anymore since the original debt can no longer be collected.
The collapsed bond asset value destroys the bank's liquidity (money flow) and
prevents it from issuing new loans, thus freezing credit and economic
activity in the community.
The suppliers of Warehouse had granted him generous payment
extensions and had invested their firms' pension funds in the BOND
security
They find they are now faced with having to write off his bad debt
and with losing over 90% of the presumed value of the bonds.
His food supplier also claims bankruptcy, closing the doors on a
family business that had endured for three generations, his drink
supplier is taken over by a competitor, who immediately closes the
local plant and lays off 50 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 the government.
The funds required for this bailout are obtained by new taxes
levied on employed, middle-class, non-drinkers who have never been in
the Goodtime bar.
Now do you understand the EuroZone troubles?
Eurozone crisis explained.
Eurozone crisis explained.
[_]> No Liberals were harmed during the making of this post.
Re: Eurozone crisis explained.
Nice - all comes back to drink.... lol