Heidi’s Hiatus….27th March 2009

We came across this article in an Australian magazine. It gives us a new slant on the Global Financial Crisis and we thought that you might be interested to read it (we suggest over a beer or glass of wine or two!!) -

The Global Financial Crisis explained in simple terms:
Heidi is the proprietor of a bar in Berlin. To increase sales she decides to allow her regular customers, most of whom are unemployed alcoholics, to drink now but to pay later.

She keeps track of the consumed drinks in a ledger (thereby granting loans to the customers). Word gets around and new customers flood Heidi’s bar. Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices of wine and beer, the most consumed beverages.

Her sales volume increases massively. A young and dynamic customer service consultant at the local bank recognises these customers’ debts as valuable future assets and increases Heidi’s borrowing limit at the bank. He sees no reason for undue concern since he has the debts of the (alcoholic) customers as collateral.

At the bank’s corporate headquarters, expert bankers transform these customer assets into Drink Bonds, ALK Bonds and Puke Bonds. These securities are then traded on markets world-wide. No-one really understands what these abreviations mean or how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items.

One day, though the prices are still climbing, a risk manager at the bank (subsequently fired due to his negativity) decides the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar. However, they cannot pay them. Heidi cannot fulfill her loan obligations to the bank and claims bankruptcy.

Drink Bonds and ALK Bonds drop in price by 95%. Puke Bonds performs better, stabilising 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 themselves, 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 goverment after dramatic round-the-clock consultations by leaders of the governing political parties. The funds required for this purpose are obtained by a tax levied against the non-drinkers.
Simple isn’t it!