Heidi is the proprietor of a bar in London.
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 a new marketing plan that allows her customers to drink now, but pay later.
Heidi 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 London ...
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 because 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.
These "securities" then are bundled and traded on international securities markets.
Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are 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 still are 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 fulfil her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs.
Overnight, DRINKBOND prices drop by 99%.
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 Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities.
They find they are now faced with having to write off her bad debt and with losing over 99% of the presumed value of the bonds have no money to pay
their workers pensions.
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 multibillion 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, non-drinkers who have never been in Heidi's bar.
Now do you understand?
Banking in a beer glass, love it !!
I must admit - despite being a reasonably intelligent person - it all makes my head hurt 
I understand the above BUT what I never seem to get is where has all the money actually gone? it can't have just disappeared completely (can it?)
......... and if no one apparently has any money where are we (the country) borrowing trillions of pounds from? - someone who has lots of money
obviously.......... but no one has any money............
Going for a lie down now
But in the above annology, at what point do the unemployed drinkers get their drinks reposessed?
Expertly summarised IMHO
If you want to read more about how it really happened in the US sub-prime markets have a read of...
The Big Short by Michael lewis
Absolutely amazing how such a relatively small band of people could and were allowed to have such a major effect on the global economy. The
terrifying thing is how those at the top of the institutions (banks, ratings agencies, insurance companies etc.) just did not understand what was
going on beneath them. Not to say they would have stopped it, but IMHO punishable negligence at work!
quote:
Originally posted by D Beddows
I must admit - despite being a reasonably intelligent person - it all makes my head hurt
I understand the above BUT what I never seem to get is where has all the money actually gone? it can't have just disappeared completely (can it?) ......... and if no one apparently has any money where are we (the country) borrowing trillions of pounds from? - someone who has lots of money obviously.......... but no one has any money............
Going for a lie down now
Yes but in order to sell something (even an idea) 'someone' has to buy it with something so, even if 'someone' is buying it with
the profits from selling an idea themselves to someone else, someone somewhere along the line gets all our money......... don't they?? Or where
has the money actually gone?
[Edited on 29/9/11 by D Beddows]
Another pyramid selling scheme in disguise, a bit like the housing market.
Whoever decided that Financial Services was to be a significant portion of any society was an effing genius.
Oh wait, don't a lot of the politicians come from financial service backgrounds?
quote:
Originally posted by D Beddows
I must admit - despite being a reasonably intelligent person - it all makes my head hurt
I understand the above BUT what I never seem to get is where has all the money actually gone? it can't have just disappeared completely (can it?) ......... and if no one apparently has any money where are we (the country) borrowing trillions of pounds from? - someone who has lots of money obviously.......... but no one has any money............
Going for a lie down now
Add a financial regalutor who was instructed not to upsett the big banks stock market.
And a stap line at the bottom after all the toxic debts have been pickup up by the gouvernment they have to cut the service you are going to get when
you get poorly or when you are a victim of crime because more crimbo's will take a risk that they are not going to get caught as the police can
only afford to investigate big crimes.
PS the Banks & Bankers that took the risk have moved on taken the profit and left us with the Debt Happy days .
Agriv8
I suppose all this really shows where the true allegiences are and it appears that they are not for the average man in the street.
Scarily that is actually a pretty good analogy!
& to answer the Q who is lending all the money, I was told by a friend who is a merchant banker (no that's not just rhyming slang!!
) that
the money is indeed coming largely from China, but also from Japan & India, either way I think we will have a very different looking society in 50
years time! - Perhaps anyone under 30 had better start looking at a totally different way of writing as they don't do it like we do!
It is not understanding this sort of thing that got us into this mess. There never was any money, only promises to pay, which were reneged on. Meanwhile people were paid just to hand out fictional "money" and spend like drunken sailors. These people had the only real money. It isn't that complicated, but made so by banks and investment people, all the better to fleece you. No government will face the realities now, because it is a sure way to never be elected again.
Surely though it wasn't all virtual money here there were people that made a lot of money from the whole thing. The whole thing revolves around
sub prime lending so the buyers were given larger amounts of money to pay for houses they shouldn't have been able to buy. This means that the
vendors were coining it in and due to the high number of buyers prices spiralled every upwards. So the property developers etc. that so bemoan there
situation now along with the estate agents and other hangers on must have been laughing all the way to the bank.
I know I wasn't I had just put my house up for sale and watched its value drop by about 25% in the 2 years it took me to sell it. Saying that I
got my current house for 25% less also and as I was trading up this was to my advantage but it all felt bad at the time.
Crazy that houseprices are still relatively high and starting to rise again.
pete
It amazes me that these merchant bankers/stockbrokers spent millions nay billions of pounds without really knowing what they were spending it on.
Its a bit like buying a engine without seeing it running and then building a kitcar around said engine without even checking that it'll turnover.
Each country is worth a certain amount to other countries depending on natural reserves, gold reserves etc etc. Unfortunately most of our natural
reserves have run out and Gordon "genius" Brown sold off all our remaining gold reserves at the height of the "happy days" for
virtually nothing. Quite why he did this is a good question. Generally when things are good you stock-pile assets for when they go pete tong.
Unfortunately, he wanted to keep the good times a'rolling (as that would keep him in power- possibly....). So he sold the gold. With the very
high price of gold now, we woudlnt' have needed to go begging to China et al. for money, we could have just sold the gold reserves.
They way I look at things, the banks and the bankers realised that western supremacy is fading as we use up all the natural reserves and become more
reliant on developing countries (like China) for raw goods, manafacturing etc etc. So they spun a little get-rich pyramid scheme, fooling everyone
into thinking things were great before milking the country for every last penny, safe in the knowledge that they had the country over a barrel- the
govnerment would either have to bail them out or let a run on banks happen, causing national instant finanical meltdown.
The bankers will now concentrate on the developing countries, having siphoned off any residual money in the west. It's not Al-quada who will
bring down the west it's Barclays, Lloyds TSB and Natwest.
quote:
Originally posted by blakep82
quote:
Originally posted by D Beddows
I must admit - despite being a reasonably intelligent person - it all makes my head hurt
I understand the above BUT what I never seem to get is where has all the money actually gone? it can't have just disappeared completely (can it?) ......... and if no one apparently has any money where are we (the country) borrowing trillions of pounds from? - someone who has lots of money obviously.......... but no one has any money............
Going for a lie down now
china i think. istr hearing they are the ones lending a lot of the money out. whether thats completely true i don't know
or at least, they're the ones lending everyone else the money now...
[Edited on 29/9/11 by blakep82]
Lets cut to the chase Scott - Did Heidi have pigtails and a heavy busen ?
I like the quote credited to senator Everett Dirksen, "A billion here, a billion there, pretty soon it adds up to real money."
^^^ always thought that quote was by Dubya, but its a good one either way
I watched a few vids on youtube about the origin of banking, complete with amusing animations, was quite interesting.
quote:
Originally posted by T66
Lets cut to the chase Scott - Did Heidi have pigtails and a heavy busen ?
The problem exists where people with responsibility for long term stability are rewarded with bonuses based on short term results. Greed overpowers mature planning.
She started the recession it seems: http://www.locostbuilders.co.uk/viewthread.php?tid=108033
Of course, she was in Berlin then - must have moved because of he Euro crisis!
That Heidi gets around a bit!
rumour has it Heidi recently spent some time in Greece too
Most of the money in society doesn't really exist. At a basic level the banks create money as follows:
Dave puts £10k in the bank.
Bank lends £9k to Pete, who spends it on a car.
Car dealer puts £9k in bank.
Bank lends £8k to Tom, who spends it on a car
Car dealer puts £8k in bank.
Bank lends £7k to Bill
etc etc
So far the £10k has bought £24k of cars & Dave still thinks he has £10k in the bank. If Dave wants his £10k back they give him other people's
money as they have lots of customers like Dave.
The bank hopes that all their customers don't ask for their money back at the same time!
quote:
Originally posted by whitestu
Most of the money in society doesn't really exist. At a basic level the banks create money as follows:
Dave puts £10k in the bank.
Bank lends £9k to Pete, who spends it on a car.
Car dealer puts £9k in bank.
Bank lends £8k to Tom, who spends it on a car
Car dealer puts £8k in bank.
Bank lends £7k to Bill
etc etc
So far the £10k has bought £24k of cars & Dave still thinks he has £10k in the bank. If Dave wants his £10k back they give him other people's money as they have lots of customers like Dave.
The bank hopes that all their customers don't ask for their money back at the same time!
It's called 'Fractional Reseve Banking', FRB (and a lot of other things). As described by previous posters, it's a kind of
money-multiplier for the banks because it only demands a level of reserves of a few per-cent of the bank's overall liabilities. (Solvency is a
different matter).
FRB has been much criticised for the current financial crisis including the woes of the US dollar, the euro and the £ sterling.
What I find very interesting (and somewhat disturbing) is the 'flight to gold' as a result of loss of faith in the fiat currencies of the
world. (Fiat currency--State issued money with no intrinsic worth or value). In the history of civilisation, there has never been a fiat currency that
has survived. Not one !
The flight to gold has manifested itself in the metal topping out at $2000 an oz recently since people believe it will always have an
'intrinsic' value. A gram of gold for instance will always buy you 30 loaves (say). Whereas you needed a wheelbarrow full of Deutchmarks to
buy a loaf of bread in Weimar Germany in 1923. (A glass of beer was 4 billion marks). Mind you, there were 100- trillion mark-notes in circulation.
(That's one note denominated as 100,000,000,000,000 or about 25 $US.
Gordon Brown was 'famous' for selling off 400 tons of gold between 1999 and 2001 when it was at a 20 year low. That little jaunt cost the
taxpayer around £12,000,000,000 or 12 billion, having sold it off at around $275 /oz. Genius !
I promise not to go on, but the fellow who loaned out 9 quid to Pete, based on the 10 that Dave put in, actually loaned out more like 100 quid or even
500 quid. Then you get to see the magnitude of the problem. All loaned to people who couldn't pay it back. It is multiples of multiples that gets
you into trouble.
It's a bit like gang wars on the streets: nobody cares if a few hoodlums kill each other, but eventually, some small child gets in the way and
people get upset.
quote:
Originally posted by bobinspain
(Fiat currency--State issued money with no intrinsic worth or value).