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I was sent this email by @Nooli68 and @SophiiMaria, which tries to explain, in a very simplified way, the crisis engulfing Europe and how we got to this point. It is an interesting read and worth spending the time doing so if you’re not totally sure why this issue is so vitally important. Also, please follow @Nooli68 as he is new to Twitter – and he’s also @SophiiMaria‘s dad!
Chantelle is the owner of a bar on Hessle Road, Hull.
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 a 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 Chantelle’s “drink now, pay later” marketing
strategy and, as a result, increasing numbers of customers flood into
her bar. Soon she has the largest sales volume for any bar in
Hull .
By providing her customers freedom from immediate payment demands,
Chantelle gets no resistance when, at regular intervals, she substantially
increases her prices for wine and beer, the most consumed beverages.
Consequently, Chantelle’s gross sales volume increases massively.
A young and dynamic manager 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 headquarters, expert traders figure a way to
make huge commissions, and transform these customer loans into DRINK
BONDS.
These “securities” 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
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 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 Chantelle’s bar.
He so informs Chantelle.
Chantelle then demands payment from her alcoholic patrons, but being
unemployed alcoholics they cannot pay back their drinking debts.
Since Chantelle cannot fulfill her loan obligations she is forced into
bankruptcy. The bar closes and Chantelle’s 11 employees lose their jobs.
Overnight, DRINK BOND prices drop 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 Chantelle’s bar had granted her generous payment
extensions and had invested their firms’ pension funds in the 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 sacks 150 workers.
Fortunately though, the bank, the brokerage houses and their
respective executives are saved and bailed out by a multi-billion
pound no-strings attached cash infusion from the government.
The funds required for this bailout are obtained by new taxes levied
on employed, middle-class, nondrinkers who have never been in Chantelle’s
bar.
Now do you understand?
PS: this has just been copied and pasted from the email, so any spelling or grammar errors are nothing to do with me!
