This is one of those viral emails that I think is funny enough to post...
Subprime simplified...
Linda is the proprietor of a bar in Ireland. 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.
Finally an explanation one can understand...
