The financial crisis explained in simple terms.

NOTE: This is a version of a story I heard on talk radio and embellished and added, “The crisis was created deliberately by Liberals aided by greedy bankers and politicians buying votes.”
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Heidi is the proprietor of a bar in Berlin . In order to increase sales, she decides to allow her 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, promoted by liberal politicians and their adoring media and as a result increasing numbers of customers flood into Heidi's bar.

Taking advantage of her customers' freedom from immediate payment constraints, Heidi gradually but steadily increases her prices for wine and beer, the most-consumed beverages gradually. Her sales volume increases massively as do her profits (and tax payments)

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. Deciding to expand she opens several new bars on her greatly expanded credit.

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 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, a risk manager (subsequently of course fired due his negativity) of the bank decides that the time has come to demand payment of the debts incurred by the drinkers at Heidi's bar and by Heidi for her greatly expanded business.

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.

Finally an explanation I understand...
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In addition, the non-drinkers are mostly business people, some very wealthy, who hire 90% of the people employed and generate most of the new jobs. Seeing their profits deeply cut by the expanded taxes, they reduce their one-year and five-year financial budgets, cut their plans for expansion, reduce their payroll (that’s lay off many of their employees), and cancel orders for new equipment.

The stock market drops by 50% as investors move their holdings to safer places (like gold and Ireland).The media morosely reports the layoffs and order cancellations announcing, “We are now in a terrible recession brought about by greedy businessmen.” Consumer confidence (a very nebulous quality) drops precipitously, profits (and taxes) take a huge drop, and more and more businesses fail.

The government (who can’t manage anything and would seriously “screw up a one car parade”) takes over those failing “business that are too big to fail.” Between feuding and self-serving politicians and anal retentive government bureaucrats the economy collapses in line with a quote often attributed to a Scottish Historian, Alexander Tytler or Tyler. The true origin of the quote is obscure and might have originated in the early 20th century from an unknown politician or writer. Nevertheless, this does not detract from its accuracy.

One version of the quote on why democracies always fail is:

"A Democracy cannot exist as a permanent form of government. It can only last until the citizens discover they can vote themselves largesse out of the public treasury. After that, the majority always votes for the candidate promising the most benefits from the public treasury with the result that the Democracy always collapses over a loose fiscal policy, to be followed by a dictatorship, and then a monarchy."

A version of the second part of the misquote, attributed in 1983 to Arnold Toynbee is:

"The release of initiative and enterprise made possible by self-government ultimately generates disintegrating forces from within. Again and again, after freedom brings opportunity and some degree of plenty, the competent become selfish, luxury-loving and complacent; the incompetent and unfortunate grow envious and covetous; and all three groups turn aside from the hard road of freedom to worship the golden calf of economic security. The historical cycle seems to be: from bondage to spiritual faith; from spiritual faith to courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependency; and from dependency back to bondage once more."

But the person who appears to be the actual author ot the second part is Henning Webb Prentis, Jr., President of the Armstrong Cork Company. In a speech entitled "Industrial Management in a Republic," delivered in the grand ballroom of the Waldorf Astoria at New York during the 250th meeting of the National Conference Board on March 18, 1943, and recorded on p. 22 of Industrial Management in a Republic, Prentis had this to say:

“Paradoxically enough, the release of initiative and enterprise made possible by popular self-government ultimately generates disintegrating forces from within. Again and again after freedom has brought opportunity and some degree of plenty, the competent become selfish, luxury-loving and complacent, the incompetent and the unfortunate grow envious and covetous, and all three groups turn aside from the hard road of freedom to worship the Golden Calf of economic security. The historical cycle seems to be: From bondage to spiritual faith; from spiritual faith to courage; from courage to liberty; from liberty to abundance; from abundance to selfishness; from selfishness to apathy; from apathy to dependency; and from dependency back to bondage once more.

“At the stage between apathy and dependency, men always turn in fear to economic and political panaceas. New conditions, it is claimed, require new remedies. Under such circumstances, the competent citizen is certainly not a fool if he insists upon using the compass of history when forced to sail uncharted seas. Usually so-called new remedies are not new at all. Compulsory planned economy, for example, was tried by the Chinese some three milleniums ago, and by the Romans in the early centuries of the Christian era. It was applied in Germany, Italy and Russia long before the present war broke out. Yet it is being seriously advocated today as a solution of our economic problems in the United States. Its proponents confidently assert that government can successfully plan and control all major business activity in the nation, and still not interfere with our political freedom and our hard-won civil and religious liberties. The lessons of history all point in exactly the reverse direction.”

For more information about these quotes and their sources go to:
. . . http://www.lorencollins.net/tytler.html