An in-site from the Evening Standard…….
How Banking functions - the European way.
Heidi is the owner of a bar in Berlin. 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 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 raises her prices for wine and beer, the most ordered beverages.
Her sales volume increases massively. A young and dynamic customer service consultant at the local bank recognises these 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 banks corporate headquarters, expert bankers transform these customer assets into Drinkbonds (DBs), Alkbonds (ABs) and Pukebonds (PBs). These securities are then traded worldwide. No one really understands what the abbreviations mean or 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 because of his negativity) of the bank decides the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar. However they cannot payback the debts. Heidi cannot fulfil her loan obligations and claims bankruptcy.
DBs abd ABs drop in price by 95%. PBs perform better, stabilising 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 now faced with a new situation. Her wine supplier claims bankruptcy and 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 political parties. The funds required for this purpose are obtained by a tax levied on non drinkers.