Deriving Pleasure from Investments ?

jeffers


Joined: 12/05/2009
Posts: 30

Message Posted:
13/05/2009 12:13

At last, what we've all been waiting for.



An understandable explanation

Of derivative markets ..



In this parable, Heidi is the owner/operator 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.

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 lim

jeffers


Joined: 12/05/2009
Posts: 30

Message Posted:
13/05/2009 12:18

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 that the securities being sold to

them as 'bank-secured bonds' are really the debts of unemployed alcoholics.

Nevertheless, the price of these these bits of paper from the banks continuously climb and the

Securities become the top-selling items for some of the nation's

Leading brokerage houses, who collect enormous fees on their sales and

pay extravagant bonuses to their sales force.

In turn these bonuses are used to purchase

Exotic sports cars, yachts and multimillion dollar condominiums.

One day, although the bond prices are still climbing, a Risk Manager

jeffers


Joined: 12/05/2009
Posts: 30

Message Posted:
13/05/2009 12:19

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, and her beer supplier is taken over by a competitor, who

immediately closes the local plant and lays off 50 workers.



However, the bank

and brokerage houses are saved by the Government, using taxpayers' money, following dramatic

round-the-clock negotiations by leaders from both political parties.

The new funds required for this cash bailout are obtained by a massive new tax levied on employed middle-class non-drinkers.



Finally an explanation I understand ...