It all makes sense now,
Subject: Derivative markets, an understandable explanation
Heidi is the proprietor of a bar in Detroit . 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 about Heidi's drink now pay later marketing strategy and as a result, increasing numbers of customers flood into Heidi's bar and soon she has the largest sale volume for any bar in Detroit .
By providing her customers' freedom from immediate payment demands, Heidi gets no resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases massively.
A young and dynamic vice-president 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 traders transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS.
These securities are then traded on security markets worldwide. Naive investors don't really understand the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, their prices continuously climb, and the securities
become the top-selling items for some of the nation's leading brokerage houses.
One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's. Heidi demands payment from her alcoholic patrons, but being unemployed they cannot pay back their drinking debts. Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy.
DRINKBOND and ALKIBOND drop in price by 90 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans.
The suppliers of Heidi's bar, having granted her generous payment extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.
The bank and brokerage houses are saved by the Government following dramatic round-the-clock negotiations by leaders from both political parties. The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.
Finally an explanation I understand .....
Saturday, June 13, 2009
Tuesday, June 9, 2009
Parental Moments ~ Early Evening Thoughts
About the time my daughter was in High School. a ladies only strip club had made the news here in town. It was owned by a former dancer of note (according to his press releases) and had become quite the party spot. It had (at that time) a firm "ladies only" policy ~ so, from what we understood the evenings were fairly raucous. This became quite the topic of conversation from my daughter and she was making all sorts of devious plans to go. I didn't worry too much about it as 1) she was way to young to get in and 2) I doubted she would really have gone even if she could have gotten into the place and 3) she was talking out loud about the plans ~ probably to see what kind of reaction it would get.
My daughter also loved to go to the various trade shows (travel), home and garden shows and the other exhibitions during the year. She was the exact opposite of my ex-wife. who could tolerate those kind of gatherings for - oh - maybe ten minutes and then was done. My daughter, on the other hand, loved to go, look and see everything that was there. She also was beginning to "scope" out men which was quite funny to be around. She would decided someone was cute, and I'd tease her to go talk to him, to which she would refuse, etc. It was a fun time to be around her ...
One week, there was a home and travel show at the convention center and I extended the invitation for her to come with me and for once, she decided that she didn't want to go but "Bring me home something from it, Dad." was the response.
So, I went and wandered around the exhibits on the main floor and then went to the second floor exhibits. In the center of all those exhibits was not only an exhibit for the club she had been talking about, but about 8 of the dancers were there as well. And yes, everything was quite G-rated. I wandered by and realized they were selling pictures, slides (!?!) and calenders. Ah ha!! A calender would be the ideal thing for her - if I could find one that she would be allowed to hang in her room! I found a large wall one with all 12 months and a different dancer for each month. This was a little more PG rated, but they were basically clothed and I was pretty sure that my ex (not ex at the time but later) would allow it in the house and in her room.
Not only did I get the calender, I got the dancers who were there to autograph the calender for her - and they each personalized it. I was sure it would be a great hit. (two of the dancers circled their birthdays with hearts - as if!!)
I waited to give it to her for several days. We were heading to do some shopping and I reminded her about the home/travel show and that it was too bad she wasn't there, because ... and then I told her who was there. It was a wonderful dramatic moment on her part as she was quite vocal about having missed them, etc. THEN, I gave her the calender.
A long silence followed, and all I could think was: "Oh, great, she doesn't like it!!" Finally I asked her if she was unhappy with it ...
Another long pause, then she replied that she did like it but ~ she said; "I just realized that there is no way I could date someone who has bigger boobs and more hair than I do!"
My daughter also loved to go to the various trade shows (travel), home and garden shows and the other exhibitions during the year. She was the exact opposite of my ex-wife. who could tolerate those kind of gatherings for - oh - maybe ten minutes and then was done. My daughter, on the other hand, loved to go, look and see everything that was there. She also was beginning to "scope" out men which was quite funny to be around. She would decided someone was cute, and I'd tease her to go talk to him, to which she would refuse, etc. It was a fun time to be around her ...
One week, there was a home and travel show at the convention center and I extended the invitation for her to come with me and for once, she decided that she didn't want to go but "Bring me home something from it, Dad." was the response.
So, I went and wandered around the exhibits on the main floor and then went to the second floor exhibits. In the center of all those exhibits was not only an exhibit for the club she had been talking about, but about 8 of the dancers were there as well. And yes, everything was quite G-rated. I wandered by and realized they were selling pictures, slides (!?!) and calenders. Ah ha!! A calender would be the ideal thing for her - if I could find one that she would be allowed to hang in her room! I found a large wall one with all 12 months and a different dancer for each month. This was a little more PG rated, but they were basically clothed and I was pretty sure that my ex (not ex at the time but later) would allow it in the house and in her room.
Not only did I get the calender, I got the dancers who were there to autograph the calender for her - and they each personalized it. I was sure it would be a great hit. (two of the dancers circled their birthdays with hearts - as if!!)
I waited to give it to her for several days. We were heading to do some shopping and I reminded her about the home/travel show and that it was too bad she wasn't there, because ... and then I told her who was there. It was a wonderful dramatic moment on her part as she was quite vocal about having missed them, etc. THEN, I gave her the calender.
A long silence followed, and all I could think was: "Oh, great, she doesn't like it!!" Finally I asked her if she was unhappy with it ...
Another long pause, then she replied that she did like it but ~ she said; "I just realized that there is no way I could date someone who has bigger boobs and more hair than I do!"
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