Just in case, this is how it really works
Posted: Tue Dec 01, 2009 2:26 pm
An interesting description of the web of Derivative
>>> Markets.......................
>>>>
>>>>
>>>>> Subject: AN EXPLANATION OF DERIVATIVE MARKETS
>>>>>>
>>>>>> An Easily Understandable Explanation of Derivative
>>>>>> Markets:
>>>>>>
>>>>>> Heidi is the proprietor of a bar in Detroit. 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 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 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 sales volume for any bar
>>>>>> in Detroit.
>>>>>>
>>>>>
>>>>>> By providing her customers' freedom from immediate payment
>>>>>> demands, Heidi
>>>>>> gets no resistance when, at regular intervals, she
>>>>>> substantially increases
>>>>>> her prices for wine and beer, the most consumed beverages.
>>>>>> Consequently,
>>>>>> Heidi's gross sales volume increases massively.
>>>>>>
>>>>>
>>>>>> A young and dynamic vice-president at the local bank
>>>>>> recognizes that these
>>>>>> customer debts constitute valuable future assets and increases
>>>>>> Heidi'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 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 Heidi's bar.
>>>>>> He so informs Heidi.
>>>>>>
>>>>>
>>>>>> Heidi then demands payment from her alcoholic patrons, but
>>>>>> being unemployed
>>>>>> alcoholics they cannot pay back their drinking debts.
>>>>>> Since, Heidi 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 Heidi'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 dollar
>>>>>> no-strings attached cash infusion from the Government.
>>>>>> The funds required for
>>>>>> this bailout are obtained by new taxes levied on employed,
>>>>>> middle-class
>>>>>> nondrinkers.
>>>>>>
>>>>>
>>>>>> Now, do you
>>>>>> understand?
>>> Markets.......................
>>>>
>>>>
>>>>> Subject: AN EXPLANATION OF DERIVATIVE MARKETS
>>>>>>
>>>>>> An Easily Understandable Explanation of Derivative
>>>>>> Markets:
>>>>>>
>>>>>> Heidi is the proprietor of a bar in Detroit. 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 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 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 sales volume for any bar
>>>>>> in Detroit.
>>>>>>
>>>>>
>>>>>> By providing her customers' freedom from immediate payment
>>>>>> demands, Heidi
>>>>>> gets no resistance when, at regular intervals, she
>>>>>> substantially increases
>>>>>> her prices for wine and beer, the most consumed beverages.
>>>>>> Consequently,
>>>>>> Heidi's gross sales volume increases massively.
>>>>>>
>>>>>
>>>>>> A young and dynamic vice-president at the local bank
>>>>>> recognizes that these
>>>>>> customer debts constitute valuable future assets and increases
>>>>>> Heidi'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 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 Heidi's bar.
>>>>>> He so informs Heidi.
>>>>>>
>>>>>
>>>>>> Heidi then demands payment from her alcoholic patrons, but
>>>>>> being unemployed
>>>>>> alcoholics they cannot pay back their drinking debts.
>>>>>> Since, Heidi 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 Heidi'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 dollar
>>>>>> no-strings attached cash infusion from the Government.
>>>>>> The funds required for
>>>>>> this bailout are obtained by new taxes levied on employed,
>>>>>> middle-class
>>>>>> nondrinkers.
>>>>>>
>>>>>
>>>>>> Now, do you
>>>>>> understand?