How the market went crashing- an interesting story..

I found this write up which came to me from a colleague very interesting in terms of explaining what really went wrong with our financial system. With companies like AIG and its executives being "hanged" publicly everyday people forget that we have to take a fair share of the blame too. Many of us went ahead and enjoyed the benefits when it was free flowing and now we find it created this situation. So it is like blaming the doctor for falling ill when we never took care of our health in the first instances. I hope this G20 summit will bring in some radical changes in our banking regulations and accounting systems. Till then read the "story" below.
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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 nations 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 fulfill 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."