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Best Explaination of Mortgage/Financial Crisis

This explanation was offered by a mortgage professional.  After searching the Net, I can't tell who's explanation it was originally, but it clearly explains what happened.... 

Heidi is the proprietor of a bar. In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).  Word gets around and as a result increasing numbers of customers flood into Heidi's bar.  

Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively.  

A young and dynamic customer service consultant at the local bank recognizes these customer debts as valuable future assets and increases Heidi's borrowing limit.  He sees no reason for undue concern since he has the debts of the alcoholics as collateral.  

At the bank's corporate headquarters, expert bankers transform these customer marketable assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.  

One day, although the prices are still climbing, a risk manager of the bank decides that slowly the time has come to require payment of the debts incurred by the drinkers at Heidi's bar.  

However, the debtors cannot pay back the debts. Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.  

The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor.  

The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties. The funds required for this purpose are obtained by a tax levied on the non-drinkers.  Finally an explanation I understand...

Happy listing and selling real estate!

Heath Coker, Associate Broker
Robert Paul Properties
www.CapeGroup.com / capegroup@capegroup.com
508-274-5613  Licensed in MA
Its a beautiful day on Cape Cod!
@CapeGroup  Skype: heath.coker

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James Heath Coker | Create Your Badge

Comments

Hurrah! An explanation you can explain at the bar where everyone asks "How did this happen - I don't get it?" Love this post!

Posted by Shannon Aldrich, NH & Maine Real Estate Seacoast (Keller Williams Coastal Realty) about 10 years ago

Giggle *

Posted by Associate Broker Falmouth MA Cape Cod Heath Coker, Heath Coker Robert Paul Properties Falmouth MA (http://www.CapeGroup.com & http://www.REindex.com) about 10 years ago

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