Fwd: FW: Economics 2011

Curator's note: This RW FWD: is an updated version of this post from June of 2009.

----- Original Message ----- 
Sent: Saturday, October 29, 2011 3:03 PM
Subject: Fwd: FW: Economics 2011

Subject: Economics 2011

Economics 2011

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 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 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 recognizes 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 and Alkibonds.
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. Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, Drinkbonds and Alkibonds 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 Mary’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 euro no-strings-attached cash infusion from their cronies in government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary’s bar.
Now, do you understand economics in 2011?”


Anonymous said...

Pretty sure this should be called "Economics 2008". But timing aside, I guess I should be happy that this blames the holy free market for its own mess. Its actually fairly accurate.


I wonder if we really did run out of RWFs and now are dipping into the non-crazy email pile?

gruaud said...

No, the "unemployed alcoholics" gives it away.

They blame us for this mess they caused.

It's also a slam at Freddie and Fannie, who actually HELPED people. As opposed to BoA and other banks who couldn't WAIT to screw us.

My word verification is "unions". Oh lord above, how you smile on me.

Anonymous said...

This is actualy not a bad analogy, except for the negative connotations of "unemployed alcoholics."

But if you replace "unemployed alcoholics" with "ordinary bar customers", and then add in the part about how all of the drinkers were being advised by the mass media and all sorts of "profesionals" to drink as much as possible for their health and to not worry about the bills, and add how the "profesionals" were all in bed with the people profiting from the scheme - well, then it would be an excellent analogy.

Duncan said...

I suspect 'unemployed alcoholics' is just a way of saying 'sub-prime lenders' or 'people who have no realistic likelihood of repaying'.

I agree with Anonymous No. 1 - I'm not at all sure this is RW mail. And for that matter it isn't nearly as crazy as what happened in Ireland or Iceland.

(In a nutshell; you agree that my land is worth a million Euro, and I agree that your land is worth a million Euro. We take our mortages, secured against the fact that we own land worth a million Euro and use that to buy each others land. The debt from the mortgages is then sold internationally. 'Why would these people not be able to pay you back, they're millionaires?' Meanwhile, in Greece, it's discovered that you don't have to pay taxes, you can just bribe your tax collector and the politicians will cook the books and the economy will mysteriously keep going. And in Germany people paid their bills, worked their jobs and made sensible investments.

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