Understanding The European Crisis...Sort Of!

I was sent this email by @Nooli68 and @SophiiMaria, which tries to explain, in a very simplified way, the crisis engulfing Europe and how we got to this point. It is an interesting read and worth spending the time doing so if you're not totally sure why this issue is so vitally important. Also, please follow @Nooli68 as he is new to Twitter - and he's also @SophiiMaria's dad!

Chantelle  is the owner of a bar on Hessle Road, Hull. 

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.

She  keeps  track of the drinks consumed on a ledger (thereby granting

the customers'  loans).

Word gets around about Chantelle's "drink now, pay later"  marketing

strategy and, as a result, increasing numbers of customers flood  into

her bar. Soon she has the largest sales volume for any bar in 

Hull .

By providing her customers freedom from immediate payment  demands,

Chantelle gets no resistance when, at regular intervals, she  substantially

increases her prices for wine and beer, the most  consumed  beverages.

Consequently, Chantelle's gross sales volume increases  massively.

A young and dynamic manager 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, since he has the debts of the

unemployed alcoholics as  collateral!!!

At the bank's  headquarters, expert traders  figure a way to

make huge commissions, and transform these customer loans  into DRINK

BONDS.

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 Chantelle's bar.  

He so informs Chantelle.

Chantelle then demands payment from her alcoholic  patrons, but being

unemployed alcoholics they cannot pay back their  drinking debts.

Since Chantelle cannot fulfill her loan obligations  she is forced into

bankruptcy. The bar closes and Chantelle's 11 employees  lose their jobs.

Overnight, DRINK BOND prices drop 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 Chantelle'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 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 sacks 150 workers. 

Fortunately though, the bank, the brokerage houses and their 

respective executives are saved and bailed out by a multi-billion

pound  no-strings attached cash infusion from the government.

The funds  required for this bailout are obtained by new taxes levied

on employed,  middle-class, nondrinkers who have never been in Chantelle's

bar.

Now do you understand?

PS: this has just been copied and pasted from the email, so any spelling or grammar errors are nothing to do with me!