The Financial Crisis Simplified

Subject: Understanding the financial crisis

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 DRINKING-BONDS, ALKAY-BONDS, PUKER-BONDS and VOMIT-NOTES. 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 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 drinkers at Heidi's bar.

However they cannot pay back the debts.

Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKING-BOND and ALKAY-BOND drop in price by 95 %. PUKER-BOND performs better, stabilizing in price after dropping by 80 % VOMIT- NOTES never recover.

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 the purpose of saving the bank were obtained by a tax levied on the non-drinkers.

Finally an explanation I can/may understand...:cool:

Buzz Bumble

Furry Ewok
The even simpler version: People are too greedy.

  • Management is greedily grabbing as much as they can in over-bloated salaries, bonus, etc. causing prices to rise.
  • Too many people are buying stuff they don't need on credit.
  • Greedy people are buying multiple house as "investments" causing house prices and rents to increase.
  • ...