Re: serious *OT* question

On Mon, 02 Mar 2009 17:14:28 -0800, johnny_t <nobodyis@xxxxxxxx>
wrote:

Ok, the bond holders RAISED money and the money went to somebody, right?
presumably to help fund the operation. Right? So presumably that
money went to the beer and wine folk.

Heidi, in the meanwhile probably gets paid some, and is either using
bond proceeds, or meager bar proceeds to make bond payments, and pay
herself a bit of a salary.

Yeah, in the meantime.
Her customers got their beer and wine, and didn't worry about having
to pay for it, in the meantime.


Where else did the bond money go?

Mostly down the gullets of Heidi's customers.
People who took on more debt than they could pay in the long run.

I can see Heidi going bankrupt, but not the wine and beer folks, though
I can see them growing too big, on the belief of ongoing drinking. But
they should have been getting paid up to that point.


Well, as the parable goes, Heidi's suppliers granted her generous due
dates on the money she owed them.
They convinced themselves that she would always be able to pay them.

Both Heidi and her suppliers overextended themselves during a period
of growth.

It just grew and grew, until somebody started looking at those
wonderful DRINKBONDS, ALKBONDS and PUKEBONDS that had been going up
and up in price.

Some inconsiderate *** pointed out that if those unemployed
alcoholics couldn't pay what they owed, the bonds were worthless.

Like any Bubble, it gets burst at some point.
BANG


http://www.econlib.org/library/Mackay/macEx2.html
Memoirs of Extraordinary Popular Delusions and the Madness of Crowds
Chapter 2
The South-Sea Bubble
---------------------------------------------------------------------

Those of us in the modern day like to think that we are so smart and
have come so far that we couldn't get fooled like that.

We aren't.




FL Turbo wrote:
On Mon, 02 Mar 2009 16:27:37 -0800, johnny_t <nobodyis@xxxxxxxx>
wrote:

I was with you until the wine and beer supplier went bankrupt.
Presumably THEY possibly along with Heidi were the ones that got paid.

Huh?
In the parable, Heidi went bankrupt.

The ones that didn't are the bond owners. And the ones that didn't
pay were the drinkers.

The wine and beer folks are like the car companies, and Microsoft, and
Dell. Sold tons of products, and all of the sudden, nobody is buying
anymore, and now nobody has a job.


The parable was referring to the beer and wine distributors, not the
beer and wine producers.
We aren't talking Budweiser here.

We are talking about relatively small businesses, not giant companies.
Who is bailing the small distributors out?

You could think of the analogy of the numerous auto dealerships
throughout the country.
Who is bailing them out?

The bailout goes to the giant companies like GM, Ford and Chrysler.
Companies who are "too big to fail".

FL Turbo wrote:
On Mon, 02 Mar 2009 15:42:07 -0800, johnny_t <nobodyis@xxxxxxxx>
wrote:

O-PGManager wrote:
interesting post! i hope things aren't that bad.
Me too.

But I point you to the previous links that I posted, which have a quicky
explanation of the type and scope of problem...


http://podcast.thisamericanlife.org/podcast/375.mp3
http://www.thislife.org/extras/radio/355_transcript.pdf
Cheers
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-----------------------------------

I ran across this "cute" little parable explaining the meltdown.

----------------------------------
The financial crisis explained in simple terms.

Heidi is the proprietor of a bar in Berlin .
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 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
(subsequently of course fired due his negativity) of the bank decides
that slowly the time has come to demand payment of the debts incurred
by the drinkers at Heidi's bar.

However they 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, of
course, on the non-drinkers.

----
Cheerios.

But, Hey.
It's only a parable.
.