Drinking Man's Guide to Subprime Loans

[Sam]

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 to his negativity) of the bank decides that 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 on the non-drinkers.

Finally an explanation I understand...

[pelathais]

... and we all get stuck with the worthless pukebonds, higher taxes and a nagging concern about our children's future.

[TJJJ]

Let me guess Sam, your sister's bar?

[A.W. Bowman]

I love it Jim! I really loved it!

[rgcraig]

Putting it down there in layman's terms for the understanding impaired - - LOL!!!!!

[RandyWayne]

Several years ago I read a similar analogy, except this time it was comparing "Ted Kennerly's" Burger Bill to national health care.
This gist of it was that Ted authored a bill which turned the consumption of hamburgers into a single payer system whereby people started out paying a very small amount each month for all the burgers they could eat.
As the story progressed it showed how the percentage that people paid had to increase more and more while the the price of the burger itself skyrocketed (and if you DIDN'T take part of the system you could now no longer afford a burger unless you were independently wealthy), all the while people who normally would not eat a burger suddenly started eating them "because they were 'free'". And so on and so on.
Eventually people who had originally opted out of the bill were forced to join at the same time that a "co-pay" was enforced (on the rich of course) as well as rationing. A DELUXE burger could take MONTHS to receive!