VJM is the proprietor of a well-stocked bar.
He realizes that virtually all of his customers are unemployed alcoholics and, as such, can no longer afford to patronise his bar.
To solve this problem, he comes up with a new marketing plan that allows his customers to drink now, but pay later. He keeps track of the drinks consumed on a ledger (thereby granting the customers loans)
Word gets around about VJM's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flooding into VJM's bar. Soon he has the largest sales volume for any bar in the area. By providing his customers' freedom from immediate payment demands, VJM gets
no resistance when, at regular intervals, he substantially increases his prices for wine and beer, the most consumed beverages. Consequently, VJM'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 increase VJM's borrowing limit. He sees no reason for any undue concern since he has the debts of VJM's customers 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 VJM's bar. He so informs VJM
VJM then demands payment from his alcoholic patrons but being unemployed alcoholics they cannot pay back their drinking debts.Since VJM cannot fulfill the loan obligations he 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 bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community
The suppliers of VJM's bar had granted him 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 his bad debt and with losing over 90% of the presumed value of the bonds
His wine supplier also claims bankruptcy, closing the doors on a family the business that had endured for three generations, his beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers 8Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion no-strings-attached the cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class who have never been in VJM's bar.
Now, you know - Economics
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