Bob is the owner of a pub.
Suddenly, he realizes all its customers are alcoholics who have no job and can no longer attend his counter, because they’ve quickly squandered their social benefits.
He imagines a great marketing plan: "Booze now, pay later". He rigorously maintains its slate of credits, therefore amounting to a loan to its customers.
Turnover and profits explode and its pub became, on paper, the most profitable of the capital.
The Brewers and wholesalers too are rubbing their hands and gladly extend payment deadlines.
Every day Bob is going more into debt and customers accept ungrudgingly regular price increases, thus inflating the margins of the Pub (always on paper).
The young and dynamic representative of Bobs’ Bank, realizing that this pile of debt is in fact a futures contract and therefore an asset, offers loans to Bob with customers’ receivables as collateral.
His great find is worth to the visionary banker a lavish bonus.
At the headquarters of the Bank, a trader imagines a way to make beautiful commissions: it converts debt into “BOOZEOBLIGATIONS”. The Boozeobligations are then "securitized" (converted into packets of marketable securities) to be sold on the futures market.
Confident in their banker and hungry for high yields, customers don't realize that these securities, sold to them as "AAA bonds", are actually phoney claims of lazy drunks.
The Boozeobligations become the star of the markets, causing fights to get them and their price to break the ceilings.
One morning, a "risk manager" forgotten in the cellars of the Bank wakes up and signals that it is time to ask Bob customers settle their slate.
Bob tries but customers, having no job, turn it down!
The Bank then requires the repayment of the loans and logically the Pub fires all employees and files for bankruptcy, causing the bankruptcy of its booze suppliers, which, in turn, also fires their employees.
The course of the Boozeobligations drops suddenly by 90%.
The depreciation of that asset vaporizes the assets and thus the liquidity of the Bank.
Problemos: its bankruptcy would ruin too many voters ("too big to fail", they say)
Therefore, the Bank is bailed out (worst case) or bailed in (best case).
This bail-out or bail-in is then funded by new taxes levied from employees, middle-class, and a lot of people who work, don't drink and who have never set a foot in Bob’s pub...
Not difficult to understand, isn’t it.
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