Why are bank bailouts required? Here is a simple explanation…
Heidi is the owner of a local bar.
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 and increasing numbers of customers flood into Heidi’s bar.
Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.
A young and dynamic customer service consultant at the local bank recognizes 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 bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS and then further into derivatives. These securities then are traded on markets worldwide. No one really understands what these are and how the securities are guaranteed. Nevertheless, as their prices continually climb, the “securities” become top-selling items.
One day, although the prices still are climbing, a risk manager of the bank — subsequently fired because of his negativity — decides that the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar. However, they cannot pay back the debts.
Heidi cannot fulfill her loan obligations and claims bankruptcy for her bar, retiring to her Swiss chalet, bought with the salary she paid herself from bank loan proceeds.
DRINKBOND and ALKBOND drop in price by 95%. PUKEBOND performs better, stabilizing in price after dropping by 80%.
The suppliers of Heidi’s bar, having granted her generous payment due dates and having invested in the securities, now have problems of their own. Her wine supplier claims bankruptcy and her beer supplier is taken over by a competitor.
The bank is saved by the government following dramatic round-the-clock consultations by leaders from the governing political parties. The funds required for this purpose are obtained by a tax levied on the non-drinkers.
You may think you just have read a joke. If so, why aren’t you laughing? Yes, sadly enough, the truth is that this is exactly what is going on with the banking bailouts. But, the truth actually is much, much worse, because the government functionaries engineering the bailouts are bought and paid for by the bankers … with your bailout money, of course.
Computers/Internet, Electronics/Technology, Entertainment/Fun, Friends and/or family, Religion, Society/Community | Todd | 
March 30, 2009 3:50 pm | 
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