Easy To Understand Illustration

[LongJim]

"An Easily Understandable Explanation of Derivative Markets:

Heidi is the proprietor of a bar in Detroit. 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 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 Heidi's "drink now, pay later"

marketing strategy and, as a result, increasing numbers of customers flood

into Heidi's bar. Soon she has the largest sales volume for any bar in

Detroit.

By providing her customers' freedom from immediate payment demands, Heidi

gets no resistance when, at regular intervals, she substantially increases

her prices for wine and beer, the most consumed beverages. Consequently,

Heidi's 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 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 corporate headquarters, expert traders transform these

customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities

are then bundled and traded on international security markets. Naive

investors don't really understand that the securities being sold to them

as AAA secured bonds are really the 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 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 Heidi's bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons, but being

unemployed alcoholics they cannot pay back their drinking debts. Since,

Heidi cannot fulfill her loan obligations she is forced into bankruptcy.

The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The

collapsed bond asset value destroys the banks liquidity and prevents it

from issuing new loans, thus freezing credit and economic activity in the

community.

The suppliers of Heidi's bar had granted her generous payment extensions

and had invested their firms' pension funds in the various 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 lays off 150

workers.

Fortunately though, the bank, the brokerage houses and their respective

executives are saved and bailed out by a multi-billion 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.

Now, do you understand?"

LINK

[UNTflyer]

And Bush personally orchestrated the whole deal.

[eulessismore]

And Bush personally orchestrated the whole deal.

Well he did say "Wall Street got drunk". At the time, he didn't mention that the taxpayers would make good on the tab.