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Thread ID: 122068	2011-11-28 20:11:00	How Treasury and Creative Accounting works.	B.M. (505)	PC World Chat

Post ID	Timestamp	Content	User
1246169	2011-11-28 20:11:00	From an E-Mail I received. An excellent explanation. ;) Sue is the proprietor of a bar in South Auckland. She realises that virtually all of her customers have become unemployed alcoholics and, as such, can no longer afford to patronise her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. Sue keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around about her "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Sue's bar. Soon she has the largest sales volume for any bar in South Auckland. By providing her customers freedom from immediate payment demands, Sue gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Sue'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 Sue's borrowing limit. He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral! At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into DRINKBONDS. These "securities" then are bundled and traded on international securities markets. Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics. So the bond prices continuously climb - and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses. One day a risk manager at the original local bank starts to worry about the high bond price, and decides that the time has come to demand payment on the debts incurred by the drinkers. He so informs Sue. She has no option but to demand payment from her alcoholic patrons. But, being unemployed alcoholics, they cannot pay back their drinking debts. Since Sue cannot fulfil her loan obligations she is forced into bankruptcy. The bar closes and her 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. The suppliers of Sue's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with 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 plant and lays off 150 workers. Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the worried government. The funds required for this bailout are obtained by new and high taxes levied on employed, middle-class, non-drinkers who have never even been into Sue's bar. And that my friends is how Treasury and Creative Accounting works. ;)	B.M. (505)
1246170	2011-11-28 22:18:00	No not really. Because while all the alkies are coming in and drinking for free on credit, she still has to pay the rent, power, wages, suppliers etc. On no money. So the analogy doesn't work.	pctek (84)
1246171	2011-11-28 22:38:00	... x2. TLDR. :D	pcuser42 (130)
1246172	2011-11-28 23:56:00	No not really. Because while all the alkies are coming in and drinking for free on credit, she still has to pay the rent, power, wages, suppliers etc. On no money. So the analogy doesn't work. No, she doesn’t have a problem there because her Bank has given her credit facilities based on her trade so she has no problems there. Likewise her suppliers have extended her credit. :)	B.M. (505)
1246173	2011-11-29 01:50:00	That's right B.M., a layman has to read it through to fully understand the gist of the story. You could adjust those two paragraphs to make it stand out. Someone in another post mentioned Bonds held against NZ assets, lets hope John Key redeems part of those with the sale of assets !. Isn't he going to invest the sale proceeds into water reticulation for farming ?. Lurking.	Lurking (218)
1246174	2011-11-29 04:58:00	That's right B.M., a layman has to read it through to fully understand the gist of the story. You could adjust those two paragraphs to make it stand out. Someone in another post mentioned Bonds held against NZ assets, lets hope John Key redeems part of those with the sale of assets !. Isn't he going to invest the sale proceeds into water reticulation for farming ?. Lurking. Sounds like something he might do in the Beehive toilet :o	gary67 (56)
1246175	2011-11-29 19:26:00	x2. TLDR. :D I asked for deletion myself :P. Felt that it was a bit rude, but hey..i had a few drinks the day before i posted that. Hungover emocat is hungover!	EmoCat (16620)
1246176	2011-11-29 20:13:00	I asked for deletion myself :P. Felt that it was a bit rude, but hey..i had a few drinks the day before i posted that. Hungover emocat is hungover! PressF1 isn't exactly the most PC forum in the world ;)	pcuser42 (130)
1246177	2011-11-29 20:29:00	PressF1 isn't exactly the most PC forum in the world ;) Yeah, ive seen bigger forums than this regarding PC stuff. However, it appears that there are some nice people here, and i've been ordering in these PCWorld mags, and reading quite alot on here for a while. Only recently signed up and didnt read the rules. Only have myself to blame for that one.	EmoCat (16620)
1246178	2011-11-29 20:42:00	We like to use the , when all else fails rule here.	Cicero (40)
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