Subject: Dummies guide to what went wrong in Europe .
At last a simple explanation..... sent to me by email.....apologies for its length!!! but it does make the situation clear!!!!
>>
>> Helga is the proprietor of a bar .
>>
>> 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 .
>>
>> Helga keeps track of the drinks consumed on a ledger ( thereby
>> granting the customers' loans .)
>>
>> Word gets around about Helga's " drink now , pay later " marketing
>> strategy and , as a result , increasing numbers of customers flood into
>> Helga's bar .
>>
>> Soon she has the largest sales volume for any bar in town .
>>
>> By providing her customers freedom from immediate payment demands
>> Helga gets no resistance when , at regular intervals , she substantially
>> increases her prices for wine and beer - the most consumed beverages .
>>
>> Consequently , Helga's gross sales volumes and paper profits
>> increase massively .
>>
>> A young and dynamic vice-president at the local bank recognises that
>> these customer debts constitute valuable future assets and increases
>> Helga's borrowing limit .
>>
>> He sees no reason for any undue concern , since he has the debts of
>> the unemployed alcoholics as collateral .
>>
>> He is rewarded with a six figure bonus .
>>
>> At the bank's corporate headquarters , expert traders figure a way
>> to make huge commissions , and transform these customer loans into DRINK
>> BONDS .
>>
>> These " securities " are then bundled and traded on international
>> securities markets .
>>
>> Naive investors don't really understand that the securities being
>> sold to them as " AA Secured Bonds " are really 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 .
>>
>> The traders all receive a six figure bonus .
>>
>> 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 Helga's bar.
>>
>> He so informs Helga.
>>
>> Helga then demands payment from her alcoholic patrons but being
>> unemployed alcoholics , they cannot pay back their drinking debts .
>>
>> Since Helga cannot fulfil her loan obligations she is forced into
>> bankruptcy .
>>
>> The bar closes and Helga'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 Helga's bar had granted her generous payment
>> extensions and had invested their firms' pension funds in the DRINK 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 multibillion dollar
>> no-strings attached cash infusion from the government.
>>
>> They all receive a six figure bonus.
>>
>> The funds required for this bailout are obtained by new taxes levied
>> on employed , middle-class , non-drinkers who've never been in Helga's
>> bar.
>>
>> Now do you understand ?