This is a great explanation of what caused our world economy collapse. The banks rewarded poor credit risks by finding ways to invest in junk. For those who have short memories, think of our bankrupt auto companies, Merrill Lynch, AIG, Lehman Brothers, etc.
The mess that Obama inherited was caused by the Financial industry that lives off of commissions and transaction fees, with absolutely no oversight and producing no products. Is there a kinder word for “bottom feeders”?
When you read this amusing story, I am sure you will connect this to our present financial environment for the last 15 years.
Mary is the proprietor of a bar in Dublin . She realizes 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 a 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.