The Dummies Guide to What Went Wrong in Europe

Interesting theory. What do you think??

It would appear that some bird called Helga caused this recession, read on it's all explained perfectly...

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, in a ledger, of the drinks consumed (thereby granting loans to the customers).

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 volumes and paper profits increase massively. A young and dynamic vice-president at the local bank recognises 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.

He is rewarded with a six figure bonus.

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These "securities" are then bundled and traded on international securities markets.

Naive investors don't really understand that the securities being sold to them as "AA Secured Bonds" are really 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.

The traders all receive a six figure bonus.

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 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, 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.

They all receive a six figure bonus.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who've never been in Helga's bar.

Now do you understand?

Mike

Mike Turner

miketurner

The Dummies Guide to What Went Wrong in Europe

Students huh! From our previous conversations Beth my guess is that you personally left the German economy in surplus ;)

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Beth Burgess

bethburgess2-672944

The Dummies Guide to What Went Wrong in Europe

Oh so it's all MY fault then ;) I lived in Germany for a couple of semesters as a student. I forgot to pay my bar bill at the local when I left. Massive defecit in the German economy that year...

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Nic Oliver

nicoliver

The Dummies Guide to What Went Wrong in Europe

It would be extremely ironic if the country that was the architect of the Euro would be the architect of its downfall! Every member country except Germany sees the need for Eurobonds so that Spain, Italy, Portugal et al can borrow at the same interest rate enjoyed by Germany. Germany refuses. But then it was Germany that built the major flaw into the Euro. A currency that was meant to create a level playing field was fatally flawed when Germany blocked Eurobonds from the outset. The German banks knew they could make a killing on the financial markets; as the strongest economy in Europe it knew it could borrow money via bonds at around 1%. The other irony is that the German people are upset because, according to my German stepmother, they believe they are bailing out Europe. In reality, they are blocking any genuine attempt to sort out the problem!

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Angus Whitton

anguswhitton-88567

The Dummies Guide to What Went Wrong in Europe

H'mmm I thought her first name was Angela ? Good blog! Angus

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Robert Craven

robert-craven-22343

The Dummies Guide to What Went Wrong in Europe

It all makes sense... RC

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Lisa Bakker

lisabakker-64498

The Dummies Guide to What Went Wrong in Europe

no not really... what is a six figure bonus? some kind of a posh cocktail???

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Fred Rutgers

fredrutgers-186363

The Dummies Guide to What Went Wrong in Europe

I finaly get it ;-) Fred

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