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 How the bail out works

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nollaig
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PostSubject: How the bail out works   Mon 13 Dec 2010, 7:15 pm

How a bailout package works

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.

On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a 100 note on the desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the note and runs next door to pay his debt to the butcher.

The butcher takes the note and runs down the street to repay his debt to the pig farmer.

The pig farmer takes the note and heads off to pay his bill at the supplier of feed and fuel.

The guy at the Farmers' Co-op takes the note and runs to pay his drinks bill at the pub.

The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit.

The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the same note.

The hotel proprietor then places the note back on the counter so the rich traveller will not suspect anything.

At that moment the traveller comes down the stairs, picks up the note, states that the rooms are not satisfactory, pockets the money and leaves town.

No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.



And that, ladies and gentlemen, is how a bailout package works.



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PostSubject: Re: How the bail out works   Tue 14 Dec 2010, 12:48 pm

Economics in Ireland as we understand it in 2010.

Mary is the proprietor of a bar in Dublin . 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 new marketing plan that allows her customers 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 Mary's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar. Soon she has the largest sales volume for any bar in Dublin .

By providing her customers' freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages.
Consequently, Mary'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 Mary's borrowing limit. He sees no reason for any undue concern, since 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, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the 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 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 Mary's bar. He so informs Mary.

Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.
Since, Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.

Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%.
The collapsed bond asset value destroys the banks liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.

The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various 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 multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Marys's bar.

Now, do you understand Irish economics in 2010?

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d1conorlehane
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PostSubject: Re: How the bail out works   Tue 14 Dec 2010, 6:06 pm

excellent
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Eoin O'Callaghan
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PostSubject: Re: How the bail out works   Tue 14 Dec 2010, 6:56 pm

Brilliant
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PostSubject: Re: How the bail out works   Tue 14 Dec 2010, 7:20 pm

And I thought bailing out involved a cut off milk carton and a sponge Rolling Eyes
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Paul Heff
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PostSubject: Re: How the bail out works   Tue 14 Dec 2010, 8:52 pm

Of all the options, I reckon Rebecca's will be the only one that works..........
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PostSubject: Re: How the bail out works   Wed 15 Dec 2010, 5:14 pm

Rebecca wrote:
And I thought bailing out involved a cut off milk carton and a sponge Rolling Eyes

Very good! Laughing
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