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Explaining Modern Finance And Economics Using Booze And Broke Alcoholics
Courtesy of reszatonline, who brings us the following allegory by way of Tim Coldwell, we are happy to distill (no pun intended) all of modern economics and finance in a narrative that is 500 words long, and involved booze and broke alcoholics: in other words everyone should be able to understand the underlying message. And while the immediate application of this allegory is to explain events in Europe, it succeeds in capturing all the moving pieces of modern finance.
From reszatonline
Helga is the proprietor of a bar.
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.
Helga keeps track of the drinks consumed on a ledger (thereby granting the customers’ loans).
Word gets around about Helga’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Helga’s bar. Soon she has the largest sales volume for any bar in town.
By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Helga’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 Helga’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, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS.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 “AA” “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 Helga’s bar.
He so informs Helga.
Helga then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.
Since Helga cannot fulfil her loan obligations she is forced into bankruptcy.
The bar closes and Helga’s 11 employees lose their jobs.
Overnight, DRINKBOND 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 Helga’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 lays off 150 workers. Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Helga’s bar.
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Blacks were and are perfectly capable of participating in high finance, given the proper social attitudes. It has happened before: http://en.wikipedia.org/wiki/Greenwood,_Tulsa,_Oklahoma
It didn't end well, and not because of anything the blacks did.
Mansa Musa http://en.wikipedia.org/wiki/Musa_I_of_Mali
Racism, anti-semitism, jingoism, xenophobia,sexism, etc are all collosal wastes of time. judge people on an individual basis.
i consider it the mark of a higher intelligence to NOT be able to participate in high finance.
My ironic twist had MORE to do with whites being NBA stars... (Dirk Nowitzski notwithstanding)...
http://www.youtube.com/watch?v=jiYbIyOYCG0
most likely not - but that's the myth that allowed us to exterminate them - as they were crude, godless, uncivilized pagans. much like 'what is our oil doing under their land'.
if you want to educate yourself on some of what happened in north america - http://www.amazon.com/Man-Eating-Myth-Anthropology-Anthropophagy-ebook/dp/B000QTD1TM/ref=dp_kinw_strp_1?ie=UTF8&m=AG56TWVU5XWC2
it is actually very humorous at times. the author has particular fun with mr. christopher columbus.
Not really. They didn't need justification, as they didn't care about racism, or appearing to be racist back then. They wanted the Indians dead and/or gone. Most of them didn't know the underlying cause of their hate for them, other than that they were "savages". The Indians were called savages because they were by and large murderers and theives, and rarely hesitated to steal from white settlers, ie violated their natural rights. This caused a blood fued that originated between specific groups of settlers and a few warlike tribes, and eventually changed into whites vs. reds. Further, they treated each other the exact same way, which is why they were so primative. Not many generations before the arrival of Europeans in North America, at least the Eastern half of the continent was settled by a sedentary civilization that had fairly extensive trade networks and even worked copper. They just had a societal breakdown that caused them to go primative again, before the whites arrived. This was likely an event similar to the Bronze Age collapse. This is something that has only been known to happen some three times in human history.
The worst case scenario is that this is the fourth, but that seems unlikely, as knowledge is too firmly held by humanity at this point. The other collapses were permanent and brought an age of darkness with them. It is hard to imagine a set of circumstances that could wipe out knowledge that is held so widely across the entire globe.
Having seen both Cahokia Mounds in IL just east of St. Louis and Emerald Mound along the Trace in MS it does make you wonder, "What the hell happened?" given there's evidence that both sites were trading partners at one point..
It's damn creepy.
http://en.wikipedia.org/wiki/List_of_Mississippian_sites
Aside from the predominant theory in all civilization collapses (climate, ag failure, disease) Many academics think the missisipians constructed a system of taxation and regulation so complex that one day somebody just said f*#k this and went gault. everyone followed. My understanding of current standing research is that they knew some of these sites were bigger than london at the same points in history, but there is no mass accumulation of bones to explain a die off, so they must have burned all the bodies (unlikely) or simply walked away (probable)
"It's called Trail of Tears." There is one that runs through for Oklahoma from the Carolinas. Heap mounds everywhere.
Now portions are pavement and traffic lights.
Now I have been to some Walmarts out west and blacks, whites and Mexican are VERY hard to find other than Indian.
Pero la vida loca es mucha mas buena.
Good one Banzai. Puts things in perspective.
I used to laugh at that joke. Now i shake my head ;-)
I hear you. The last three years have caused me to step back and take a fresh look at my priorities.
i'm sure everybody knows this joke. but here goes. a current cnbc favorite hedge fund manager told this at a gs event many years ago. (as quickly as possible)
the devil appears to a stockbroker and tells him - 'i can make you rich beyond your wildest dreams. every stock you pick will go up and up and every short you take will go to zero. but, the souls of you and everyone in your immediate family will belong to me as soon as they die'. to which the stockbroker replied 'you're on - where's the downside?'
And so the trouble is not with the drunk alcoholics not paying their debt.
The trouble is that they have to buy their drinks at the bar because some clown with a tie, backed by an army of hypnotized degenerates, has made it illegal for them to make their own alcohol from nature.
Like Walter Block puts it, if the problem lies in people being unemployed, simply make unemployment illegal and punishable by death without trial.
Problem solved.
>>>The trouble is that they have to buy their drinks at the bar because some clown with a tie, backed by an army of hypnotized degenerates, has made it illegal for them to make their own alcohol from nature.<<<
Nonsense. People are just don't know the law and/or are lazy.
Brewing and vinting for home consumption is perfectly legal with certain restrictions. Some states requiring permits...except for Alabama where you are SOL.
Distilling is more problematic on both the federal and state levels.
I do all three...and of course I pour my ethanol in my gas tank.
perfect story.
The story of Prometheus and how we want to ape the hero image, the urge to seek "self fulfillment" but through other people's eyes, social icons. If only we knew how to be satisfied with a half full glass in life, but in accordance with our own tempos, instead of asking for refills to have it full to the brim, obliging us to drink it to bottoms-up, just to stay in the rat race!
Not an easy thing to achieve as the urge to be part of the herd is so primordial.
Life is short ... we will realize that we wont eat money soon....
A recipe for success in modern day Amerika.
http:/./vegasxau.blogspot.com
I -1ed you, as you added nothing to discussion but just spammed.
Gotta have one more flushout...Sets the stage for the Fed to unleash hell on wheels...
WINGS break... (on a Friday)
http://www.youtube.com/watch?v=Ms7dTsiUcCM
Excellent! That is as close as it gets to real life!
The secret of modern banker finance can be summarized in one word: commingling. As if by magic the immortal bankers rise like a phoenix from the ashes to live again as your honestly earned money (value) is mixed with their banker losses and, voila!, you are destroyed. How modern can you get?
Antifederalist explained today the reality of the Davos mythology:
"Some of these assholes in Davos need to understand what life is like for the rest of us.
"Here I sit, filling out my MF Global claim forms to meet the month end deadline to try to recover my honestly earned money. The money is gone because Jon Corzine and his firm made stupid bets. The bank that lent MF Global money, JPMorgan, allowed someone at MF to pledge customer accounts as collateral for margin calls. They probably knew that they were customer accounts. Undoubtedly someone at MF Global knew they were customer funds. So MF Global bets the farm, loses and rather than having their banker take the hit with them, they looted the customers. Meanwhile, no prosecutions, no perp walks. But, hey, it is OK because in the SOTU address Obama told us he is going to get Eric Holder to establish a new agency to crack down on financial crime. Meanwhile, my small firm is being forced to register under Dodd Frank because scumbags like Madoff stole money. Nevermind the fact that Markopoulos warned the SEC.
"This shit is Orwellian. You cannot make it up. Black is white and white is black. Think fully naked emperor and lots of little kids asking questions.
"Surely the end must be near.....I hope the swells in Davos are beginning to realize what this means for them."
http://www.zerohedge.com/news/guest-post-davos-shocked-hear-poor-people-exist
Explain Modern finance using pink slime...its the magical recipe for USA's iconic product from emblematic corporate behemoth; that flies the star spangled on six continents in the most remote places in the world; they even have one in Oulan Batour!
Macburger and pink slime..food for swine, but never mind if the sheeple don't! Mcdonald's ace in the hole.
Now that, as a busines model, is unbeatable, a magic formula that would knock out Coke's own magical mixture, its sooo universal. Even Monsanto will have trouble matching that with GMO, or UC and its unparalleled Bhopal jungle juice. Or TEPCO/Fuku, or big Tobacco and nicotine.
What the world needs is stuff of this magnitude, we'll be back to 500 million in no time at all, without WMD, or toxic CDSs.
Don't look now....Nymex wholesale gasoline popped to $2.93/gallon. Spiking to $3.00 along the way.
We are entering the red zone.
http://www.marketwatch.com/investing/future/UNLEADED%20GASOLINE
Click on the 6M chart to see that this is more like an August price....but it isn't August...and demand is waaaaaaaaaaay down.
Not good.
Hmmm...Price of crude barely took notice of the Iran news.
Is there anything else that might explain the pop in wholesale gas?
*Dismissive wave, we use 3.20 silver instead of 3.80 gold and find gas stations that dont have ethanol.
There have been reports in the Los Angeles newspapers that an audit found California EBT cards have been used at Helga's bar, but since pretzels, peanuts and pigs feet are classified as 'food' by the Dept of Agriculture, everything is OK and in fact, the State is printing up brochures in twelve different languages on how to use EBT cards at these locations...
the economic viability of the unemployed alcoholics is determined by government aid. Helga is taking her clients food stamps as payment in kind. (when USG gives people SNAP and section 8 the money that would normally be spent on rent and food is spent on Ipads from China) there are 8 unemployed alcoholics at Helga's, one working man who pays his bills on time, and one retired alcoholic who has saved enough money to drink draft beer the rest of the way.
now the government program to create more jobs runs into trouble, because the working stiff (pardon the pun) can't afford Helga's inflated prices. if one more unemployed alcoholic goes to work, the bankers bonds get downgraded. then the government decides to try raising interest rates to bring down inflation in distilled spirits, which gives the retired alcoholic enough money to move his barstool offshore, to the swank place up the street, or the Caribbean maybe.
Helga raises her prices to compete. The working guy dies, and the government raises the retirement age because people are living longer.
At least my gold stocks are finally moving.
I've been clutching to them in an IRA account for 10 years, they haven't done much. I'll be glad to get rid of them after gold peaks out the next time.
Hey Sheepdog-One
Maybe I have bullion, maybe I don't. If I had bullion, I sure wouldn't advertise it here, with the Dept. of Homeland Security monitering this site on a daily basis.
lol, and you've been laughing at General Jim, while your ass was continually decimated, while they OWNED BULLION.
Christ, you are such a moron.
Hey Mosley, Why are you calling Christ a moron? According to the Bible He created all things; you are going to look pretty stupid when you meet Him. I can understand lashing out at Robo, but you seen to have it in for the One who controls and owns all things. I sure wouldn't want to be in your shoes, with or without bullion.
Here's your sign.
Even if you are not calling Christ a moron, you certainly have no regard for using His name flippantly. This indicates an attitude of indifference to the one who owns you. This attitude of indifference is but a miniscule fraction of the indifference to be shown to those who do not defer to their creator. As your timeline approaches zero, the accumulated indifference only furthers your condemnation. Isaiah 7:14 Therefore the Lord Himself will give you a sign: Behold a virgin will be with child and bear a son, and she will call His name Imanuel. How's that for a sign? Even in your condition, it is better to be a live dog than a dead lion.
@Robo
You should be more worried about the military helicopters flying over your rooftop in LA... They might be coming after your midget tranny porn collection... I'd be cautious...
You been holding them too long, sell them for fresh bullion.
Your IRA belongs to the Government now.
Trust me, food stamps are the biggest scam going in L.A. Everybody is using them to buy pizza, sports drinks, snack bars, you name it.
All the grocery stores have "EBT Approved" signs on many of the items on the shelves.
It seems that you have multiple personality disorder.
Now your reasonable part of personality is in charge, but not for long. Maybe hour or two.
and YOU'RE calling that a scam?
what is EBT? earnings before taxes? ebony booty tickets?
Beginning a sentence with "Trust me, ..." implies I should not have trusted you before.
super excellect post.
http://covert.mypressonline.com
What happens if the bar is called GREECE, the bank ECB, and the suppliers are EU countries?
MySpace err I mean FaceBook must be running into trouble. I see they are nearing an IPO. Either that and/or the end is near.
yes - facebook boys at gs know that they had better hoax it out now and quick.
I don't do Facebook.
Maybe the IPO is a way to reel in fish like me.
Especially when the recent memory of Google Stock going from 80 to 200, then 400 and over 500... that stings...
So.... Smokem if you've gotten. Drink while you can?
Holy Shit, WB7! That is one helluva KOAN. Luv it...+++++++++++++++++++++++++++++++++++++++++++++++++++++++.etc.
Robo...1st time I've ever seen you go non-monologue ever...Sheepie must have got to ya!
Food stamps, yeah baby! Somebody in a grocery store parking lot offered me $200 worth for $50 cash.
Entrepenuer!
Did you check his ID?
It might have been Timmay Geithner offering to buy them back at 25 cents on the dollar...
The bar closes and Helga’s 11 employees lose their jobs.
Where did Helga's 11 employees and unemployed patrons go?
http://www.spiegel.de/international/germany/0,1518,811262,00.html
One was retained as a playboy in the whore house, two is kept as drivers for various tasks as needed, 5 are given unemployment without challenge and the last 3, deemed the worst are referred to Hooters and given boob implants prior to being assigned a floor.
Story should end: debts are paid with fabricated fiat currency by corrupt government technocrats. With this dilution, the collected savings of non-alcoholics is watered down to pay off the alcoholics tab. Intellegent non-alcoholics buy gold with their soon to be worthless dollars.
Oh and I should add, Wall Street traders are given a perfect timing mechanism. Go long the market on leverage with 0.25% interest as the government pumps liquidity into the system. Then short the market into the ground once the bond buying programs end. Non-alcoholics 401k plans are not nimble enough to keep up, futher bankrupting the middle class.
Armada Markets just tweeted this stuff. Awesome! http://www.youtube.com/watch?v=Li0no7O9zmE
and the point is ,,,,, burp
Note to the PTB:
Crash everything now...If you wait...Your worst nightmare comes that much sooner....
This story was circulating in Europe 4 years ago. It was a satirical explanation of the US-Subprime-MBS mess.
http://blog.safog.com/2010/06/08/die-wirtschaftskrise-leicht-verstandlic...
What the world needs is better drunks!
Finally someone has explained this issue in terms I can relate to! ding ding!
This is missing a part:
The system ran OK as long as cheap hops and cheap grapes were available to make the drinks. As time went on, however, the land became exhausted, and hops and grapes became expensive and rare. The winemakers and beer companies could no longer offer Helga drinks cheaply, and started demanding cash up front.
The politicians said - we have a crisis. Lets use less hops and grapes. Instead, we will make beer from grass and we will make wine from dandelions. The only problem was, grass does not make usable beer, and dandelion wine costs four times as much to produce as grape wine and tastes terrible. However, the poilticians declared their 'green alcohol' program to be a success anyway, while prices for real grapes and hops went through the roof, killing bars everywhere.
Been there done that, remember the Prohibition?
Detroiters used to row the river to Winsdor and were asked by Customs where are they going with the nice Booze?
"Cuba"
Helga got her PhD at the University of Chicago in the college of "The Invisible Guiding Hand of the Free Market" - See banged the HEAD of the Department for shots of Jack Daniels.
One must wonder when the tipping point will occur when scamarama becomes bankers bloodlust...
Actually when the Banker's Pharmacy and Doctors finally refused any more refills of imaginary happy pills.
There will be a place to make these Bankers useful, it's called a Reality show with cameras inside thier homes for the masses.
it happend to me last night, real heavily..
Is the securitization and sale of MBS so complex that ZHs really need this poor an analogy to understand what went wrong?
For the mentally challenged, the problem was not unemployed alcoholics. It was control fraud by bank executives and all of their enablers down to the local mortgage broker. At the end, they started selling their fraudulent products to unemployed alcoholics only because they had run out of the employed and sober.
CoreLogic: House Price Index declined 1.4% in November
Notes: This CoreLogic Home Price Index report is for November. The Case-Shiller index released in late December was for October. Case-Shiller is currently the most followed house price index, however CoreLogic is used by the Federal Reserve and is followed by many analysts. The CoreLogic HPI is a three month weighted average of September, October and November (November weighted the most) and is not seasonally adjusted (NSA).
http://www.calculatedriskblog.com/2012/01/corelogic-house-price-index-de...
Helga was forced by the gov to sell drinks to the non paying alkies. The gov encouraged the banks to keep lending. The gov encouraged the brokers to bag 'em and sell 'em. Gov run entities supplied the Aa and AAA ratings on said drunki bonds.
let's face it, as bad as the system has become, look behond the curtain, boyz for the real culprit
http://www.youtube.com/watch?v=lKITYu7z-AY
Hang 'Em High (1967) trailer
She's MICs Bitch - Military Industrial Complex - For those with a sparse background in macroeconomic theory, let me refer you to Columbia Professor's Seymour Mellman's book - "The Permanent War Economy" - This book is not for lightweights so many of you may have to get your Big Sis to explain it to you. Militarism is not the same thing as Keynsian ism. Just as Capitalism has nothing to do with what the American economy is all about. (Corporate Syndicalism) Just imagine if the $1 Trillion for Bush/Chaney's atrocity in Iraq had been spent instead on the reengineering of USA's electricity grid and for capturing CO2 from coal plants and reburying it. The Imperial War meglomainiacs have destroyed Rome, Imperial Spain, Soviet Russia and now the USA. Can we say 'Industrial Policy'? Boys and Girls - The reason all of those Apple computer stock holders are at least theoretically rich, because Jobs paid for all of those GERMAN patents - Industrial Policy - The reason why the US has so many ingenious ways to commit (mass) murder - Industrial Policy- The reason why China leads the world in solar 'cheap' solar technology - Industrial Policy - The reason why Germany is the second leading exporter of manufactured goods that normal people actually want - Industrial Policy - Try not to confuse sound macroeconmic policy with psycopathic militarism - Boys and Girls
I'm no lightweight. This book worm was reading College level by the time I found a girl in 7th grade.
Now the girl on the other hand.. who the *&^ needs a book to learn really good stuff?