Saturday, January 14, 2017

How the big banks screwed us over, in terms you can actually understand...

Mary is the proprietor of a bar in California. 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 Mary's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar. Soon she has the largest sales volume of any bar in California.

By providing her customers' freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary's gross sales volume increases massively.

A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Mary'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 corporate headquarters in New York, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the 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 are still 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 Mary's bar. He so informs Mary.


Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.  Since Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and her eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. 

The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various 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, and her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives* are saved and bailed out by a multi-billion dollar no-strings attached cash infusion from their cronies in Washington. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.

*Of course they were saved.  (They always are.)  They can still be found living the high life in the Hamptons.

~sent to me by my friend Kathy via Facebook~
Thanks KM


  1. The kleptocracy will be sure to take care of its own while screwing the rest of us.

  2. I feel Trump, if he ever get's a condensed version of this, would sit back and twine his fingers over his ample slomach, and nod. "Yep, and that's how it should be".

    Wait, I forgot. He doesn't read anything beyond 140 or so words, does he. And he isn't interested in the likes of you.

  3. I still wish Elizabeth Warren had run for office.

    1. She's a senator so technically she did run for office.

    2. True. I should have typed that differently: I still wish Elizabeth Warren had run for THE office. :-)

  4. Kudos, KM...very nice analogy. Pukebonds indeed.