I think that this explains it perfectly... I didn't write this but I should love to congratulate who ever did. I shall take it down if required but it is essential reading!
"Dummies guide to what went wrong in Europe.
At last a simple explanation.....
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 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 DRINK BONDS.
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, DRINK BOND 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 DRINK 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.
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?"
I do!
Brilliant explanation. Thank you to who ever wrote this.
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