Bonds and Securities

[limbo]

Bob is the owner of a bar. In order to increase sales, Bob decides to allow his loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. He keeps track of the drinks consumed on a ledger (thereby in effect granting the customers loans).

Word gets around and as a result increasing numbers of customers flood into Bob's bar.

Taking advantage of his customers' freedom from immediate payment constraints, Bob increases his prices for beer and wine, the most-consumed beverages. His 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 Bob'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, ALCOBONDs and PUKEBONDs. These securities are then traded on the share markets. 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 Bob's bar.

However, the drinkers cannot pay back the debts.

Bob is unable to fulfill his loan obligations and claims bankruptcy.

DRINKBOND and ALCOBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Bobs bar, having granted him generous payment due dates and having invested in the securities are faced with a new situation. Bob's wine supplier claims bankruptcy, his 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 the bailout are obtained by a tax levied on the non-drinkers.