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A Surprisingly Accurate Picture of Recent Economics

Written by Admin | Dec 17, 2010 5:00:00 AM
Mary is the proprietor of a bar in Dublin . She realises that 
virtually all of her customers are unemployed alcoholics and, as such, 
can no longer afford to patronise 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 Mary's "drink now, pay later" marketing 
strategy and, as a result, increasing numbers of customers flood into 
Mary's bar. Soon she has the largest sales volume for any bar in 
Dublin .

By providing her customers' freedom from immediate payment demands, 
Mary gets no resistance when, at regular intervals, she substantially 
increases her prices for wine and beer, the most consumed beverages.
Consequently, Mary'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 Mary'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 
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 Mary's bar. He 
so informs Mary.

Mary then demands payment from her alcoholic patrons, but being 
unemployed alcoholics they cannot pay back their drinking debts.
Since, Mary 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 Mary'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 
euro no-strings attached cash infusion from their cronies in 
Government. The funds required for this bailout are obtained by new 
taxes levied on employed, middle-class, non-drinkers who have never 
been in Mary's bar.

Now, do you understand economics in 2010?