Wednesday, June 27, 2012

Helga’s Bar and Brokerage *BOOM*

Monopoly banker

We have no idea where this originated. It arrived in our email sans a URL. If our readers have any information on its pedigree, we’d be glad to update this witty (and somewhat alarming)…allegory, perhaps? Whatever category you choose for the tale, certainly it is the most succinct and accessible explanation for the meltdown – oops, mixing metaphors again. But then, no one can tell us if the future is going to be Chinese water torture-type erosion (yeah, waaaycist too) or a financial Armageddon.

The finance boys were smart enough to get us here but they didn’t have a Plan B because they didn’t have to.

Thus, we present for your entertainment and edification,

A Dummies’ Guide to What Went Wrong in Greece and Therefore, in Europe

Helga is the proprietor of a taverna in Greece. She realizes that virtually all of her customers are unemployed Greek 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.
Helga keeps track of the drinks consumed on a ledger (thereby granting the customers’ “loans”).

Word soon gets around about Helga’s “drink now, pay later” marketing strategy and as a result, increasing numbers of customers flood into Helga’s bar. Soon she has the largest sales volume (but no actual money) for any bar in town.

By providing her customers freedom from immediate payment demands Helga gets no resistance or complaint when, at regular intervals, she substantially increases her prices for wine and beer – the most commonly consumed beverages.

Consequently, Helga’s gross sales volumes and paper profits increase massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Helga’s borrowing limit. He sees no reason for any undue concern, since he has the debts of the unemployed alcoholics as collateral…

He is rewarded with a six figure bonus for being a clever little banker.
At the bank’s corporate headquarters in Athens, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These “securities” are then bundled and traded on international securities markets in Madrid, Dublin, Rome and Berlin.

Naive investors who buy into these DRINKBONDS don’t really understand that the securities being sold to them as “AA Secured Bonds” are really debts of unemployed alcoholics. Nevertheless, the bond prices continuously climb and the securities soon become the hottest-selling items for some of the leading brokerage houses across Europe including London.

The traders all receive a six figure bonus.

One day, even though the bond prices are still climbing, a risk manager at the original local bank in Greece decides that the time has come to demand some kind of payment on the debts incurred by the drinkers at Helga’s bar. He therefore informs Helga. Helga is in turn then obliged to demand payment from her alcoholic patrons but, being unemployed alcoholics, they cannot pay back their drinking debts. Since Helga cannot fulfill her loan obligations to her local bank she is forced into bankruptcy. The bar closes and Helga’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. This contagion rapidly spreads upwards to the parent bank in Athens and the bank collapses.
These local and national financiers of Helga’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 a 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 brewery and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion Euro no-strings attached cash infusion from the government in Berlin.

All these bankers and brokers involved in the “Rescue Plan “receive a six figure bonus.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who’ve never been in Helga’s bar. Most of them don’t even live in Greece.

Now do you understand?


Anonymous said...

Finally, I understand!

Anonymous said...

Ahh, a new and interesting variant description of Clinton’s Sub-prime mortgage scam.

Seneca III.

Sol Ta Triane said...

This demonstrates what is the most extreme and dangerous and extreme form of capitalism in the world: The socialist government-industry finance-manipulating enterprise.

Acolytes bow to government control. In turn they receive government blessing financial forgiveness.
The government turns elsewhere to look for the money.

As for you heathens over there, get to work!--They're going to be coming to you shortly and it's going to be you who is going to be expected to pay.

Someone has to pay.

Dymphna said...

Ah..."get to work"...many of our readers are unemployed, at least here. In Europe, college educated young men in Italy are vying for jobs as shepherds.

@ 1st anon - yeah, me too! Maybe it's the beer filter that made it all so clear.

Robert Marchenoir said...

Actually, many of those non-drinkers who are being asked to pay and who have never been to Helga's bar have been regular patrons of Bob's pastry shop, where they have been stuffing themselves with chocolate cake bought on credit.

So it's not like only Greek alcoholics are at fault.

rickl said...

That is brilliant.

rickl said...

I'd like to repost this at the Market Ticker (Karl Denninger's blog), if you don't mind. It does sound vaguely familiar, and somebody over there has probably heard it before. I'll update you if I find out anything about its origin.

Anonymous said...

I got a slightly different version of this at a oil change place in Fallon, NV about 2 years ago.

Dymphna said...

@ rickl -

Please do. Someone needs to be thanked!

@anon w/ the "oil change in Fallon Nevada" - that sounds like the punch line to a joke, no?

Anonymous said...

One thing the Helga story doesn't include is "due diligence". Prior in a previous era, banks did something called due diligence when nations(or people) asked for a loan. Basically the banks did a little research to see if you are able to pay back a loan and doubly so if it's large. Put another way, They knew from experience loaning wads of money to corrupt 3rd world states like Brazil never ended well.

Anybody could see Greece was limited in terms of a size of loan which they could pay back. Greece was a economic basket case with a corrupt and inept central government. Loaning wads of money to them over decades was obvious a losing proposition. Yet the big German banks were happy to since they had stupid meat puppets in charge of the country that would bail them out as needed.

One also needed to ask 'Why?'? Simple, banks loan fiat money and in return they get real, physical assets when the loans go bad. In short acquisition by criminal means.

Now there is nothing stopping a sovereign state from flipping off the bankers like Iceland did and default. The bankers are powerless when a nation's leaders don't kow tow to them. Think "You and what army?".

Anonymous said...

Well, unless the bankers are Communist China with an army. Ahem.


Paul Weston said...

The situation is even worse than the article above describes.

Bankers are not stupid (or at least not in terms of innovative banking).When the Drinkbonds began to be traded, the bankers hedged their bets on the possibility that at some point the original debt would be called in - which would of course lead to default.

Enter the super-brainy algorythem crunchers who insured against the possibility of default. These insurance schemes are known as Collateralised Debt Obligations or CDO's.

The CDO's themselves were then linked to Credit Default Swaps (CDS's) packaged, sold, re-packaged again, sold, re-packaged again and sold ad infinitum.

The end result of this has been to turn the original issuing bank debt of say 1 billion, into a debt multiple up to 100 times larger.

In other words the original high street bank itself stands to lose only 1 billion, but the various investment banks and hedge funds who insured against that initial debt stand to lose 100 billion.

When the first banks start to go under (after a country such as Greece, Spain or Italy defaults) it will trigger a tsunami of bankruptcies across many the financial institutions which traded CDO's against just such a scenario (which they either thought could never happen, or did not care as long as they received their annual bonus).

The financial City of London has a huge exposure to CDO's and the City is all that stands between a 1st world Britain or a 3rd world Britain.

It will not happen tomorrow, but it MUST happen at some point over the coming months and years. When it does it will be far worse than any financial catastrophe the developed world has ever seen.

I don't think many people truly understand just how bad things are going to become.

One possible outcome after this has happened is that the Socialists in the European Union declare capitalism to have failed and try to introduce a new two-tier financial system closely modelled on Communism.

Honestly, it's enough to turn one into a Conspiracy Theorist! Has this been planned all along, or are our global leaders simply criminally incompetent?

Anonymous said...

Whilst we're on the subject of booze........


Suppose that every day, ten men go out for beer and the bill for all ten comes to £100...
If they paid their bill the way we pay our taxes, it would go something like this...

The first four men (the poorest) would pay nothing.
The fifth would pay £1.
The sixth would pay £3.
The seventh would pay £7..
The eighth would pay £12.
The ninth would pay £18.
The tenth man (the richest) would pay £59.

So, that's what they decided to do..

The ten men drank in the bar every day and seemed quite happy with the arrangement, until one day, the owner threw them a curve ball.

"Since you are all such good customers," he said, "I'm going to reduce the cost of your daily beer by £20". Drinks for the ten men would now cost just £80.

The group still wanted to pay their bill the way we pay our taxes.

So the first four men were unaffected.

They would still drink for free. But what about the other six men?
The paying customers?

How could they divide the £20 windfall so that everyone would get his fair share?

They realised that £20 divided by six is £3.33. But if they
subtracted that from everybody's share, then the fifth man and the sixth man would each end up being paid to drink his beer.

So, the bar owner suggested that it would be fair to reduce each man's bill by a higher percentage the poorer he was, to follow the principle of the tax system they had been using, and he proceeded to work out the amounts he suggested that each should now pay.

And so the fifth man, like the first four, now paid nothing (100% saving).

The sixth now paid £2 instead of £3 (33% saving).

The seventh now paid £5 instead of £7 (28% saving).
The eighth now paid £9 instead of £12 (25% saving).

The ninth now paid £14 instead of £18 (22% saving).

The tenth now paid £49 instead of £59 (16% saving).

Each of the six was better off than before. And the first four continued to drink for free. But, once outside the bar, the men began to compare their savings.

"I only got a pound out of the £20 saving," declared the sixth man.

He pointed to the tenth man,"but he got £10!"

"Yeah, that's right," exclaimed the fifth man. "I only saved a pound too. It's unfair that he got ten times more benefit than me!"

"That's true!" shouted the seventh man. "Why should he get £10 back, when I got only £2? The wealthy get all the breaks!"

"Wait a minute," yelled the first four men in unison, "we didn't get anything at all. This new tax system exploits the poor!"

The nine men surrounded the tenth and beat him up.

The next night the tenth man didn't show up for drinks, so the nine sat down and had their beers without him. But when it came time to pay the bill, they discovered something important. They didn't have enough money between all of them for even half of the bill!

And that, boys and girls, journalists and government ministers, is how our tax system works.

The people who already pay the highest taxes will naturally get the most benefit from a tax reduction.

Tax them too much, attack them for being wealthy, and they just may not show up anymore.

In fact, they might start drinking overseas, where the atmosphere is somewhat friendlier.

Paris Claims

wheatington said...

Brilliant! This should be required reading for all bankers and wannabee rulers.

1389 said...


This is not capitalism; it is fascism.

Glenn said...

I first saw this allegory at the Zero Hedge site. I did some checking and found the Zero Hedge article which linked to this article at reszatonline. Where it originally came from is anyone's guess.


Anonymous said...

Paul, They are both: Criminal Communists!


bigflash said...

This is just what is going to happen to the U.S. eventually. We are on 'borrowed' time. Be ready!!

Anonymous said...

Building on Paul Weston's comment:

Over the past week Zero Hedge published a thoroughly factual essay by Jim Quinn, entitled "Who Destroyed the Middle Class." It's 10,000 words, in three parts, and it's an outstanding job -- but it does not begin to scratch the surface. Quinn speaks with an honest Democrat's voice (American readers will recognize the name Pat Moynihan as an archetype). And that means that he trains his artillery on Wall Street and the bigwigs in Congress, and the general terrain of economic destruction. But simultaneously with economic destruction, we have been subject to a cultural, moral, spiritual and demographic destruction. The demographic destruction is familiar to GoV readers, but outside this and a few other blogs, it is still taboo, discernible only to a fraction of people on the putative "Right". But "conservatives" take a pass on the cultural destruction. I maintain that we have had another "Long March" -- this one largely engineered by big business and its naive "laissez-faire" useful idiots, plus the political elite. This lowlife modern-day gentry discovered that it can increase its hold on power and access to untold (and ill gotten) riches by dumbing down and debauching the serf population via thoroughly destroyed public education, MTV and Rap, manipulative and all-enveloping advertising, cheap electronic trinkets, moronic content of mass entertainment, massaged content of news, and forced integration with uncultured populations.
Ann Barnhardt, who increasingly sounds like an apocalyptic Jeanne d'Arc, mentions the other, moral destuction often.
And even all that is just a small part of the overall picture. People who understand military issues can only look at the wars fought by the US and NATO in the last 40 years as unrestrained lunacy, both in their muddled strategy and all the wrong tactics at the wrong times. Crazed as well are the current manias of GLBT celebratin', females in combat, Affirmative Action in officer ranks, generals who are moral cowards or vile climbers on the generalship pole, etc.
The story of the rise of modern China alone would be read with total incredulity by a visitor from Mars, for no traitor has yet been recorded in history who has done to its own people what popularly elected politicians and famed business leaders have done to the Anerican people since 1975.
The panoramic picture is vastly larger and darker than just Helga or Heidi, and her bar. It is every bit as bad as Rome in 400, Russia in 1905 or Germany in 1925.
Takuan Seiyo