Tuesday, May 05, 2009

LINDA's Bar

LINDA's Bar

Linda is the proprietor of a bar in Cork . 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
Linda's bar. Taking advantage of her customers' freedom from immediate
payment constraints, Linda 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 Linda'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 to his negativity) of the bank decides that slowly the time
has come to demand payment of the debts incurred by the drinkers at Linda's
bar. However they cannot pay back the debts.

Linda 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 Linda'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 (and vested
interests). The funds required for this purpose are obtained by a tax levied on
the non-drinkers.

courtesy : email from vivek, springboard