Understanding Derivatives -- Heidi's Bar

Written by Paul Fromm

Sunday, 06 November 2011 07:37

-------------------------------------------------------------------------------- This email newsletter was sent to you in graphical HTML format. If you're seeing this version, your email program prefers plain text emails. You can read the original version online: http://ymlp258.net/z7vP9A -------------------------------------------------------------------------------- Understanding Derivatives -- Heidi's Bar Heidi is the proprietor of a bar in Detroit ... 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. Heidi 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. Soon she has the largest sales volume for any bar in Detroit. By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral! At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These "securities" then are bundled and traded on international securities markets. Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are 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. One day, even though the bond prices still are 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 Heidi's bar. He so informs Heidi. Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics -- they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi'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 Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the DRINKBOND 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 temporally saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the government. The funds required for this bailout are obtained by new taxes and bank fees levied on employed, middle-class, nondrinkers who have never been in Heidi's bar. Now do you understand? _____________________________ Unsubscribe / Change Profile: http://ymlp258.net/u.php?id=gmjhqsqgsgbbqgumy Powered by YourMailingListProvider

 

Understanding Derivatives: Case Study -- Heidi's Bar

Written by Paul Fromm

Sunday, 06 November 2011 07:29

*Understanding Derivatives: Case Study -- Heidi's Bar* Heidi is the proprietor of a bar in Detroit ... 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. Heidi 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. Soon she has the largest sales volume for any bar in Detroit. By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral! At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These "securities" then are bundled and traded on international securities markets. Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are 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. One day, even though the bond prices still are 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 Heidi's bar. He so informs Heidi. Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics -- they cannot pay back their drinking debts. Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi'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 Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the DRINKBOND 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 temporally saved and bailed out by a multi-billion dollar no-strings attached cash infusion from the government. The funds required for this bailout are obtained by new taxes and bank fees levied on employed, middle-class, nondrinkers who have never been in Heidi's bar. *Now do you understand? *

 

More benefits of multi racial immigration

Written by Paul Fromm

Friday, 04 November 2011 14:41

***More benefits of multi racial immigration *** http://www.abc.net.au/news/2011-11-02/fire-guts-office-of-french-magazine/3615728?WT.mc_id=newsmail ********************************************************************************* French magazine firebombed after 'Sharia' edition Updated November 03, 2011 06:37:33 [image: The magazine's publisher, known only as Charb, said he was convinced the fire was linked to the special edition.] <http://www.abc.net.au/news/2011-11-02/magazine-editor-outside-damaged-office/3616146> *Photo:* The magazine's publisher, known only as Charb, said he was convinced the fire was linked to the special edition. (AFP: Alexander Klein) <http://www.abc.net.au/news/2011-11-02/magazine-editor-outside-damaged-office/3616146> *Map: *France <http://maps.google.com/?q=46,2(France%20)&z=5> The offices of French satirical magazine Charlie Hebdo, which published a special Arab Spring edition with the prophet Mohammed as guest editor, has been gutted in a petrol bomb attack. The fire at the magazine started around 1:00am (local time) on Wednesday and caused no injuries, a police source said. Charlie Hebdo published a special edition on Wednesday to mark the Arab Spring, renaming the magazine Charia (Sharia) Hebdo for the occasion. The cover showed a cartoon of the prophet stating: "One hundred lashes if you don't die of laughter!" The depiction of the prophet is strictly prohibited in Islam. A witness at the scene, Patrick Pelloux, said a petrol bomb was hurled through the window and set fire to the computer system. "Everything was destroyed," he said. The magazine's publisher, known only as Charb, said he was convinced the fire was linked to the special edition. "On Twitter, on Facebook, we received several letters of protest, threats, insults," which had been forwarded to the police, he said. The weekly had said it was publishing a special edition to "celebrate" the Ennahda Islamist party's election victory in Tunisia and the transitional Libyan executive's statement that Islamic sharia law would be the country's main source of law. Charb rejected accusations that he was trying to provoke. "We feel we're just doing our job as usual. The only difference is that this week, Mohammed is on the cover and that's quite rare," he said. A Paris court in 2007 threw out a suit brought by two Muslim organisations against Charlie Hebdo for reprinting cartoons of prophet Mohammed that had appeared in a Danish newspaper, sparking angry protests by Muslims worldwide. *AFP* http://www.abc.net.au/news/2011-11-02/fire-guts-office-of-french-magazine/3615728?WT.mc_id=newsmail