GFC, how ‘real’ is it?

As I was checking out the new Blogger interface I came across this post that sat in my old account as a draft, forgotten since I moved to WP.

Its resurfacing seems a timely follow-on from my previous.

Life seems to serve up coincidences in droves. Maybe so that we’d simply take notice(?). The more ‘awake’ you are, the less you need to prompt you to really see.

Actually, I never believed in coincidences. Not because I don’t believe they happen, but because my preferred label is synchronicity. To my atheistic, overly analytical, logical mind, that makes much more sense. Everything in this universe is connected by the mere fact that it is all jostling in the same space and time. In an environment such as this, cause and effect are the main factors at play: “Every action has an equal and opposite reaction.” But some way down the chain, the relationship between the cause and effect is generally not obvious. So we don’t see the relevance. Until the same message falls at our feet from a number of different angels at the same time.

Why am I talking about this? I received this joke in my email today, as well as a link to an article. See what you think.

The financial crisis explained in simple terms:

Heidi is the proprietor of a bar. 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 and as a result increasing numbers of customers flood into Heidi’s bar.

Taking advantage of her customers’ freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her 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 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 bankers transform these customer assets into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. 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 his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Heidi’s bar.

However they cannot pay back the debts. Heidi cannot fulfill her loan obligations and claims bankruptcy.

DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing 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 faced with a new situation. Her wine supplier claims bankruptcy, 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 governing political parties.

The funds required for this purpose are obtained by a tax levied on the non-drinkers.”

And then this in “The Boston Globe“, where many of the comments are exploding with skepticism. Yes, well, why doesn’t that surprise me(?)

Hrmmm? In maths, zeros are a non-factor. Ironically, in finance they seem to be everything.  Are they in life…?

UPDATE:

This interview on MSNBC was just brought to my attention. Not sure who the guy talking is, but he makes note that he’d been talking this talk for three years. How long does it take to wake up!?

If you’re really interested in knowing the hows and whys of the GFC, this Sony doco is worth watching, “Inside Job”.

Synopsis: “Producer/director Charles Ferguson (No End in Sight) speaks at length with journalists, politicians, and financial insiders in order to offer a clearer picture of the economic meltdown that hit America starting in 2008. Academy Award winner Matt Damon narrates this unflinching look at the deep-rooted corruption that has left millions of middle-class Americans jobless and homeless as the major corporations get bailed out while paying millions in bonuses.”

Buy the doco at Amazon http://amzn.to/vZILVM

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