Joined
·
687 Posts
If you wanted to understand how it happened, read on….
Stavros is the proprietor of a bar in Greece. He realises that virtually
all of his customers are unemployed alcoholics and, as such, can no longer
afford to patronise his bar. To solve this problem, he comes up with new
marketing plan that allows his customers to drink now, but pay later. He
keeps track of the drinks consumed on a ledger (thereby granting the
customers loans).
Word gets around about Stavros's drink now, pay later marketing strategy
and, as a result, increasing numbers of customers flood into Stavros's
bar. Soon he has the largest sales volume for any bar in Greece. By
providing his customers freedom from immediate payment demands, Stavros
gets no resistance when, at regular intervals, he substantially increases
his prices for wine and beer, the most consumed beverages. Consequently,
Stavros's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognises that these
customer debts constitute valuable future assets and increases Stavros'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 Drinkabonds and Alkibonds. These
securities are then bundled and traded on international security markets.
Naïve investors don't really understand that the triple-A relating to the
bonds means All Alcoholics Anonymous and seem to think that it is some
coveted status symbol.
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 Stavros's bar.
He informs Stavros.
Stavros then demands payment from his alcoholic patrons, but being
unemployed alcoholics they cannot pay back their drinking debts. Since
Stavros cannot fulfil his loan obligations he is forced into bankruptcy.
The bar closes and the eleven workers lose their jobs. Overnight,
Drinkbonds and Alkibonds drop in price by 90%. 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 Stavros's bar had granted his generous payment extensions
and had invested their firm's pension funds in the various Bond
securities. 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 wine
supplier also claims bankruptcy, closing the doors on a family business
that had endured for three generations, his beer supplier is taken over by
a competitor, who immediately closes the local plant and lays off 150
workers.
Fortunately though, the bank, brokerage houses and their respective
executives are saved and bailed out by a multi-billion euro
no-strings-attached cash infusion from their cronies in the EU. The funds
required for this bailout are obtained by new taxes levied on employed,
middle-class, non-drinkers who have never been to Greece, never mind drunk
in Stavros's bar for free.
Stavros is the proprietor of a bar in Greece. He realises that virtually
all of his customers are unemployed alcoholics and, as such, can no longer
afford to patronise his bar. To solve this problem, he comes up with new
marketing plan that allows his customers to drink now, but pay later. He
keeps track of the drinks consumed on a ledger (thereby granting the
customers loans).
Word gets around about Stavros's drink now, pay later marketing strategy
and, as a result, increasing numbers of customers flood into Stavros's
bar. Soon he has the largest sales volume for any bar in Greece. By
providing his customers freedom from immediate payment demands, Stavros
gets no resistance when, at regular intervals, he substantially increases
his prices for wine and beer, the most consumed beverages. Consequently,
Stavros's gross sales volume increases massively.
A young and dynamic vice-president at the local bank recognises that these
customer debts constitute valuable future assets and increases Stavros'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 Drinkabonds and Alkibonds. These
securities are then bundled and traded on international security markets.
Naïve investors don't really understand that the triple-A relating to the
bonds means All Alcoholics Anonymous and seem to think that it is some
coveted status symbol.
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 Stavros's bar.
He informs Stavros.
Stavros then demands payment from his alcoholic patrons, but being
unemployed alcoholics they cannot pay back their drinking debts. Since
Stavros cannot fulfil his loan obligations he is forced into bankruptcy.
The bar closes and the eleven workers lose their jobs. Overnight,
Drinkbonds and Alkibonds drop in price by 90%. 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 Stavros's bar had granted his generous payment extensions
and had invested their firm's pension funds in the various Bond
securities. 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 wine
supplier also claims bankruptcy, closing the doors on a family business
that had endured for three generations, his beer supplier is taken over by
a competitor, who immediately closes the local plant and lays off 150
workers.
Fortunately though, the bank, brokerage houses and their respective
executives are saved and bailed out by a multi-billion euro
no-strings-attached cash infusion from their cronies in the EU. The funds
required for this bailout are obtained by new taxes levied on employed,
middle-class, non-drinkers who have never been to Greece, never mind drunk
in Stavros's bar for free.
