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To: Madharry who wrote (33757)	3/10/2009 10:17:50 PM
From: Spekulatius	1 Recommendation Read Replies (2) \| Respond to of 78735

the Mom and Pub <g> version of the credit crisis: investorvillage.com OT: The banking crisis in laymans terms Heidi is the proprietor of a bar in Berlin. In order to increase sales, she decides to allow Alan, John, Wilhelm, Raphael, Romulo, Humberto, Manuel, Jesus, Lisandro, Yosef, Gertrude, Hilda and other 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 and as a result increasing numbers of customers flood into Heidi's bar. Taking advantage of her customers' freedom from immediate payment constraints, Heidi increases her prices for wine and beer, the most-consumed beverages. Her sales volume increases massively. Herrald, a young and dynamic customer service consultant 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 bankers transform these customer assets by packaging them into DRINKBONDS, ALKBONDS and PUKEBONDS. These securities are then traded on markets worldwide. No one really understands what these abbreviations mean and how the securities are guaranteed. Nevertheless, as their prices continuously climb, the securities become top-selling items. One day, although the prices are still climbing, Michael, a risk manager of the bank (subsequently fired due his negativity) decides that the time has come to demand payment of the debts incurred by Heidi and the drinkers at Heidi's bar and starts calling the loans. However they cannot pay back the debts. Heidi cannot fulfill her loan obligations and claims bankruptcy. DRINKBOND and ALKBOND drop in price by 95 %. PUKEBOND performs better, stabilizing in price after dropping by 80 %. The suppliers of Heidi's bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her wine supplier claims bankruptcy, her beer supplier is taken over by a competitor. The bank is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties. The funds required for this purpose are obtained by a tax levied on the non-drinkers.

To: Madharry who wrote (33757)	3/11/2009 4:47:34 PM
From: Marc Hyman	Read Replies (2) \| Respond to of 78735

My point is we should have allowed aig to fail and go bankrupt. when you are a mom and pop shop and you offer credit you take the risk the customer wont pay. The issue is slightly different with AIG. The were selling insurance. If you have a fire you expect your fire insurance to cover your loss up to the terms of the policy, no? AIG was selling insurance (after all, that's all a CDS is). Assume I'm a responsible investor. In better days I bought Lehman bonds. As things started going down hill for Lehman I decide to buy insurance in the form of a CDS and AIG was offering the most attractive rates. I'm being responsible by doing so, no? Now Lehman is taken out and shot and as a result my insurance company (AIG) can't pay. Going back to the fire analogy... If it's just me, too bad. But what if the fire was something like the storms that recently hit SE Australia and everyone used the same insurance company which now can't pay off the claims? Should the government step in and help? If so, who should they help? The insurance company? I don't know the answer. The powers that be decided to step in this time. Perhaps they were right, perhaps wrong. I'm just saying it's not as simple as "he screwed up, he should pay the price". My belief is that AIG should pay the price but those who depended upon them, not so much. // marc