I am not the author of this article but I have seen it passed around and thought you would enjoy it.
Heidi is the proprietor of a bar in Berlin . 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 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.
Finally an explanation I understand…
This is from a Bloomberg that has been circulating around- I don’t know how to verify it, but it does sound pretty accurate.
* If you purchased $1,000 of shares in Delta Airlines one year ago, you will have $49.00 today.
* If you purchased $1,000 of shares in AIG one year ago, you will have $33.00 today.
* If you purchased $1,000 of shares in Lehman Brothers one year ago, you will have $0.00 today.
* But, if you had purchased $1,000 worth of beer one year ago, drank it all, then turned in the aluminum cans for recycling refunds, you will have received $214.00.
It just goes to show in this crisis, your best returns would have been from buying beer and getting drunk.
The Economist comes out every year with the Big Mac Index, and although I would like to take credit for it, it is a simple and easy way to see if a country’s currency is under or over valued based on the cost of the Big Mac in that country. Or as they put it ” The Economist’s Big Mac index uses the concept of purchasing power parity which states that the dollar should buy the same amount in all countries. Over time, the exchange rate between two countries should move towards a rate that equalizes the price of an identical basket of goods and services in each country.Comparing the cost of a Big Mac in one country against the price in another should indicate whether a currency is over- or undervalued.”
Here are this years rsults:
2009 2008 2007 2006 2005 2004 2003 2002
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—————– Big Mac Price in U.S. Dollars —————-
Argentina 3.30 3.64 2.67 2.29 1.55 1.60 1.43 1.43
Australia 2.19 3.36 2.95 2.44 2.44 2.46 2.33 1.86
Brazil 3.45 4.73 3.61 2.78 2.74 1.99 1.76 1.48
Canada 3.36 4.08 3.68 3.14 3.01 2.60 2.34 2.21
===============================================================================
2009 2008 2007 2006 2005 2004 2003 2002
===============================================================================
—————– Big Mac Price in U.S. Dollars —————-
Chile 2.51 3.13 2.97 2.94 2.98 2.56 2.47 1.95
China 1.83 1.83 1.45 1.31 1.30 1.26 1.23 1.20
Czech Rep. 3.02 4.56 2.51 2.67 2.60 2.45 2.19 1.96
Denmark 5.07 5.95 5.08 4.77 4.49 4.97 4.72 4.10
Hong Kong 1.72 1.71 1.54 1.55 1.55 1.54 1.55 1.47
Hungary 2.92 4.64 3.33 2.71 2.71 2.85 2.38 2.18
Indonesia 1.74 2.04 1.76 1.57 1.54 1.57 1.93 1.84
Japan 3.23 2.62 2.29 2.23 2.19 2.50 2.47 2.19
Malaysia 1.52 1.70 1.60 1.52 1.47 1.33 1.33 1.33
Mexico 2.30 3.15 2.69 2.57 2.66 2.12 2.21 2.18
Philippines 2.07 1.96 1.85 1.62 1.56 1.42 1.24 1.24
Poland 2.01 3.45 2.51 2.10 2.09 2.06 1.68 1.62
Russia 1.73 2.54 2.03 1.77 1.60 1.49 1.42 1.32
Singapore 2.61 2.92 2.59 2.27 2.20 2.19 1.95 1.86
South Africa 1.66 2.24 2.22 2.11 2.29 2.44 1.97 1.84
South Korea 2.39 3.14 3.14 2.62 2.56 2.36 2.80 2.73
Sweden 4.58 6.37 4.86 4.53 4.28 4.46 4.15 3.60
===============================================================================
2009 2008 2007 2006 2005 2004 2003 2002
===============================================================================
—————– Big Mac Price in U.S. Dollars —————-
Switzerland 5.60 6.36 5.20 5.21 4.93 5.46 5.11 4.59
Thailand 1.77 1.86 1.80 1.56 1.51 1.52 1.51 1.38
Turkey 3.13 4.32 3.66 2.72 3.07 2.80 2.94 2.34
USA 3.54 3.57 3.41 3.10 3.15 3.00 2.80 2.71
This past election showed that a majority of Catholics voted for Barack Obama even though his record and his views makes him the most pro-abortion President. For Catholics, abortion is a mortal sin. The Catholic church views abortion as a sin so grave that one could lose one’s soul by partaking in it. The Catholic Church is not a human organization, rather it is the living, breathing embodiment of Christ. It is not a club, one can not be a Pro-Choice Catholic. It is not a supermarket where you get to pick and choose what parts of the faith that you accept and what parts you don’t. To be clear if you think you are a Pro Choice Catholic, you aren’t. (You are not Catholic) The faith you profess to believe in is not Catholic . By denying one of the teachings of the church, that individual has placed himself outside of the church.
This past Sunday the Catholic Church actually took donations for “Campaign for Human Development: The Catholic Church working to end poverty and injustice in America; We’ll turn your dollars into hope for the poor of our nation.” Just so you know (CHD) does not go for charity but for radical Obama-style community organizing. Over the last ten years, CHD has given $7.3 million of Catholic-donated dollars to a group called ACORN (Association of Community Organizations for Reform Now).
CCHD’s executive director, Ralph McCloud, admitted to Catholic News Service that “some of the funds that the Catholic Campaign contributed to ACORN in the past undoubtedly were used for voter registration drives.”
Employees of ACORN and affiliated organizations like Project Vote have been either indicted or convicted of submitting false voter registration forms in 14 states, in June 2008 CCHD approved grants of $1.13 million to 40 local ACORN affiliates for the cycle beginning July 1, 2008. Those grants were ratified by the U.S. Conference of Catholic Bishops at its June 2008 meeting. (Source Phyllis Schaffley)
So by giving to this charity, Catholics unknowingly participated in voter fraud. But Acorn is not only involved in voter registration they were also involved in petitioning the government and banks to loosen their lending standards
Acorn was actively involved in targeting Fannie and Freddie Mac to get them to lend money to people under normal circumstances that would never qualify for a loan. With the threat hanging over them, banks began to lend to people with no income, no credit and no jobs.
Barack Obama took Acorn and through agitation forced banks to change their standards into wealth redistribution centers. With the banks and the economy now in taters, Obama can now move in and change the shape of the American institutions. A move away from freedom into one where government calls the shots.
God’s greatest gift to man was Freedom. God never obliges any one to love him or follow him it is always man’s choice. By electing Obama, US citizens have now elected a leader who does not believe in Freedom but rather in redistribution. These two ideas are mutually incompatible and the outcome of these two opposing ideas and how the battle that will now ensue will not turn at well. What is most disturbing is that Catholics, who should know these things have unwittingly given money and their votes to someone who abhors what they believe in.
There has been a lot of talk in the papers recently about not paying bonuses to the employees of Wall Street firms.
The logic is as follows: Since most of the financial community has been devastated and have been forced to borrow money from the treasury, why should the banks pay out bonuses? The fact is that the money to be paid out in bonuses will be coming from tax payer money. On the surface, it looks like a logical argument.
However in most of these firms the employees of these investment houses didn’t lose money this year. The majority of the losses came from a few areas of the firms : mortgage department, loan market and similar areas. At any Wall Street firm the number of people in these areas is relatively small. There is only so many traders, research and salesman that you need in one product group. So just because the mortgage department wiped out the equity of the firm doesn’t mean the guy trading emerging markets isn’t owed a bonus.
In the case of Bear Stearns and Lehman Brothers, their employees will not be paid because they went bankrupt. In the case of other firms that were saved (AIG) the government decided to step in and honor the firms contracts, hence the bonuses must be paid.
Like any other industry in the U.S, on Wall Street, most of the employees are solid and honest working people. The reason that many of these firms went bankrupt is because the management of these firms decided to take massively large and levered bets on the real estate market and lost. The guys who made these bets were all multimillionaires and if they had won, they would have made even more money. Since the bets didn’t pay off most of these executives were fired but kept all their millions. They made the perfect bet-heads I win tails you lose. The trader on another desk in another area of the firm is now the guy losing his job, through no fault of his own. The sad thing is that he dos not have all the millions to fall back on and now is struggling to survive.
Many of these Wall Street executives ran these firms as private fiefdoms ( see Lehman Brothers) and because of their hubris, many people have lost their jobs, their life savings and their careers. For this reason alone, I don’t believe you can punish someone by not paying them a bonus. They were not the guys who lost the money in the first place.
While politicians have been adding more regulations and laws, the Treasury has continued to add liquidity to the system and yet the markets have continued to fall. It reminds me of the old Humpty Dumpty story ” All the kings horses and all the kings men could not put Humpty Dumpty back together again”.. The Treasury and the Congress seem a bit dumbfounded by this and wonder why the markets have not recouped their losses. Another analogy would be the case of the jilted wife who accepts her husband back after all his infidelities. She has taken him back but she has not forgotten.
The markets will remain stalled until trust comes back into the market, yes trust. The humanistic person always will seek to add another law and another regulation to solve the markets. However the markets don’t work that way because they realize you can not legislate away honesty. The markets are not working because of the tremendous leverage that exists in the system and the lack of forthrightness by many of the finance companies. The U.S system of commerce is based on credit. And by credit I mean the extension of credit by banks to fund small businesses. Once this dries up, the whole economy dries up.
The finance sector has taken the money provided by the Treasury and has been using it to shore up its own balance sheets-they have not been extending this credit to the small business owner. The finance system has been arguing all along that they are in good shape only to see one company after another go under. Over the last year we have all witnessed numerous CEO’s come out and say they are in a good financial shape only to see them go out of business ( Like Lehman). This lack of truthfulness by the CEO’s has undermined the market as the players doubt the truthfulness of theses companies and all others and begin to sell.
So I would argue , these little white lies are undermining the whole system. Over the last 20 years, teachers have cited that more and more students cheat more than ever. And, as these students in turn graduate and enter the workforce, these character defects have begun to show up. Who would have ever thought that “Thou Shall Not Lie” was actually pretty sound advise.
Part of the reason we are having a melt down in the financials right now is that the market does not understand the position of the financials. For example in mid July of 08 Merrill wrote down 9.8 billon of assets only to be followed by another 5.7 billon on July 28th, 2008. As they say a billon here and a billon there and after a while it becomes real money. After the announcement, the CNBC pundits came out and openly questioned the honesty of Merrill Lynch’s CEO. I believe John Thain is an honest man who has been put in a horrendous position by his predecessors- as he has been hired to clean up the sub prime mess. The problem that Merrill faces is that if they were completely open with the public about the true nature of their losses, the market would be horrified and probably send the stock straight to zero. So hence, Merrill is forced to be discreet and hide their problems on their balance sheet and the whole market knows this.
The only reason why financial markets work is because the market has to believe in the audited financials. For the markets to work, people have to believe in their counterparts and the companies listed on the exchanges are being truthful, and to the extent they are not; why would anybody invest one cent in the markets? To be even more clear for the financial markets to work- there has to be a high degree of honesty and truthfulness. First and foremost for somebody to want to buy your stock the investors have to believe you are being truthful about what you are earning. So in reality- what is most important about the markets is not how much money a company can make but really how truthful they are in reporting those numbers. What the markets are suffering right now is a lack of credibility in what the financial houses are reporting and these have long term consequences.
After the Enron and Arthur Anderson debacle in 2001 the markets went into a free fall, partly because of the tech bubble and partly because people no longer had faith in what the companies were reporting. The congress passed the Sarbanes-Oxley Act which forced US listed companies to be more truthful in their reporting or face the consequences. Amazing as it seems, we are facing the same crisis for the same reason. What is different this time is that the financial houses are not stand alone companies, they are the engines that finance the growth of the U.S. and to the extent they can not manage to tell the truth about the nature of their losses, they have grave and serious consequences on each and every citizen.
