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An Easily Understandable Explanation of Derivative |
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cpwomack
Optics Journeyman Joined: January/29/2009 Location: Chattanooga Status: Offline Points: 550 |
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Posted: May/07/2009 at 07:53 |
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 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 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, since he has the debts of the unemployed alcoholics as collateral. At the bank's corporate headquarters, expert traders 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. Fortunately though, the bank, the brokerage houses and their respective executives are 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 levied on employed, middle-class, non-drinkers. |
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Kickboxer
MODERATOR Moderator Joined: February/13/2008 Status: Offline Points: 23679 |
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Terms that even most liberals, including drunks and drug users, can understand...
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Opinion,untempered by fact,is ignorance.
There are some who do not fear death... for they are more afraid of not really living |
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silver
Optics Master Joined: November/04/2005 Location: United States Status: Offline Points: 2291 |
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Call me old school. That explains alot of the bank problems. It leaves out the part were the bar owner was pressured into granting these loan because many of the drinkers were friends of the the local politicions who were "hinting" at the bar having code violations. It has nothing to do with derivatives.
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"If we weren't all crazy we, We would go insane." Jimmie Buffet
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scooter65
Optics Master Extraordinaire Joined: December/29/2006 Location: mi Status: Offline Points: 3567 |
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HAH!! I knew this story was totally made up when it started with Detroit and drinking... Had this been a true story and it was in Detroit, Heidi would be running a crack house.... Shame on you for such gibberish.
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SD Dog
Optics Master Extraordinaire OT Scratching Post Joined: February/28/2008 Status: Offline Points: 4177 |
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Whoa, whoa, whoa. I appreciate your optimistic view, but lets keep this grounded in reality please. |
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If nobody ever said anything unless he knew what he was talking about, a ghastly hush would descend upon the earth. AP Herbert
Stupidity & ignorance have been the foundation for many certainties. |
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Ed Connelly
Optics Retard God of no Chihuahua Joined: December/16/2007 Location: USA Status: Offline Points: 24225 |
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Run that by me again..............while I get another drink............
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