Explanations of derivatives as they apply to the current financial situation

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vmaxride06

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Heidi is the proprietor of a bar in Detroit. 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 about Heidi's drink now pay later marketing strategy
and as a result, increasing numbers of customers flood into Heidi's bar
and soon she has the largest sale volume for any bar in Detroit.

By providing her customers' freedom from immediate payment demands,
Heidi gets no resistance when she substantially increases her prices for wine and beer, the most consumed beverages. Her sales volume increases
massively.

A young and dynamic vice-president at the local bank recognizes these
customer 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 bank's corporate headquarters, expert
traders transform these customer loans into DRINKBONDS, ALKIBONDS
and PUKEBONDS. These securities are then traded on security markets
worldwide. Naive investors don't really understand the securities being sold to them as AAA secured bonds are really the debts of unemployed alcoholics. Nevertheless, their prices continuously climb, and the securities become the top-selling items for some of the nation's leading brokerage houses.
One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due his negativity), decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar.

Heidi demands payment from her alcoholic patrons, but being unemployed
they cannot pay back their drinking debts. Therefore, Heidi cannot
fulfil her loan obligations and claims bankruptcy.

DRINKBOND and ALKIBOND drop in price by 90 %. PUKEBOND performs
better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans
The suppliers of Heidi's bar, having granted her generous payment extensions and having invested in the securities are faced with writing off her debt and losing over 80% on her bonds. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 50 workers.

The bank and brokerage houses are saved by the Government following
dramatic round-the-clock negotiations by leaders from both political parties. The funds required for this bailout are obtained by a tax levied on employed middle-class non-drinkers.

Finally an explanation I understand .....
 
I've just had world politics explained to me and thought I would share the
explanation with y'all.

SOCIALISM
You have 2 cows.
You give one to your neighbour.

COMMUNISM
You have 2 cows.
The State takes both and gives you some milk.

FASCISM
You have 2 cows.
The State takes both and sells you some milk.

NAZISM
You have 2 cows.
The State takes both and shoots you.

BUREAUCRATISM
You have 2 cows.
The State takes both, shoots one, milks the other, and then throws the
milk away...

TRADITIONAL CAPITALISM
You have two cows.
You sell one and buy a bull.
Your herd multiplies, and the economy grows.
You sell them and retire on the income.

SURREALISM
You have two giraffes.
The government requires you to take harmonica lessons

AN AMERICAN CORPORATION
You have two cows.
You sell one, and force the other to produce the milk of four cows.
Later, you hire a consultant to analyse why the cow has dropped dead.

ENRON VENTURE CAPITALISM
You have two cows.
You sell three of them to your publicly listed company, using letters of
credit opened by your brother-in-law at the bank, then execute a
debt/equity swap with an associated general offer so that you get all four
cows back, with a tax exemption for five cows.
The milk rights of the six cows are transferred via an intermediary to a
Cayman Island Company secretly owned by the majority shareholder who sells
the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one
more.
You sell one cow to buy a new president of the United States, leaving you
with nine cows.
No balance sheet provided with the release.
The public then buys your bull.

A FRENCH CORPORATION
You have two cows.
You go on strike, organise a riot, and block the roads, because you want
three cows.

A JAPANESE CORPORATION
You have two cows.
You redesign them so they are one-tenth the size of an ordinary cow and
produce twenty times the milk.
You then create a clever cow cartoon image called 'Cowkimon' and market it
worldwide.

A GERMAN CORPORATION
You have two cows.
You re-engineer them so they live for 100 years, eat once a month, and
milk themselves.

AN ITALIAN CORPORATION
You have two cows, but you don't know where they are.
You decide to have lunch.

A RUSSIAN CORPORATION
You have two cows.
You count them and learn you have five cows.
You count them again and learn you have 42 cows.
You count them again and learn you have 2 cows.
You stop counting cows and open another bottle of vodka.

A SWISS CORPORATION
You have 5000 cows. None of them belong to you.
You charge the owners for storing them.

A CHINESE CORPORATION
You have two cows.
You have 300 people milking them.
You claim that you have full employment, and high bovine productivity.
You arrest the newsman who reported the real situation.

AN INDIAN CORPORATION
You have two cows.
You worship them.

A BRITISH CORPORATION
You have two cows.
Both are mad.

AN IRAQI CORPORATION
Everyone thinks you have lots of cows.
You tell them that you have none.
No-one believes you, so they bomb the **** out of you and invade your
country.
You still have no cows, but at least now you are part of Democracy....

AN AUSTRALIAN CORPORATION
You have two cows.
Business seems pretty good.
You close the office and go for a few beers to celebrate.

A NEW ZEALAND CORPORATION
You have two cows.
The one on the left looks very attractive........
 
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