Here is an amusing look at what went wrong with the banks all those months ago. It was sent to me by my son who found it on the internet:


Derivative markets..... An understandable explanation:


> Heidi is the proprietor of a bar in Kansas City . 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 about Heidi's "drink now pay later" marketing strategy and
> as a result, increasing numbers of customers flood into Heidi's bar and
> soon she has the largest sale volume for any bar in Kansas City .
>
> By providing her customers' freedom from immediate payment demands, Heidi
> gets no resistance when she substantially increases her prices for wine and
> beer, the most consumed beverages. Her sales volume increases massively.
>
> A young and dynamic vice-president 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
> traders transform these customer loans into DRINKBONDS, ALKIBONDS and
> PUKEBONDS. These securities are then traded on security markets worldwide.
>
>
> Naive investors don't really understand that the securities being sold to them
> as AAA secured bonds are really the debts of unemployed alcoholics.
> Nevertheless, their prices continuously climb, and the securities become
> the top-selling items for some of the nation's leading brokerage houses.
>
> One day, although the bond prices are still climbing, a risk manager at
> the bank (subsequently fired due his negativity), decides that the time has
> come to demand payment on the debts incurred by the drinkers at Heidi's
> bar.
>
> Heidi demands payment from her alcoholic patrons, but being unemployed they cannot pay back their drinking debts.

Therefore, Heidi cannot fulfill her loan obligations and claims bankruptcy.
>

The decreased bond asset value destroys the banks liquidity and prevents it from issuing new loans..
>
> The suppliers of Heidi's bar, having granted her generous payment
> extensions and having invested in the securities are faced with writing off
> her debt and losing over 80% on her bonds. Her wine supplier claims
> bankruptcy, her beer supplier is taken over by a competitor, who
> immediately closes the local plant and lays off 50 workers.
>
> The bank and brokerage houses are saved by the Government following
> dramatic round-the-clock negotiations by leaders from both political
> parties. The funds required for this bailout are obtained by a tax levied
> on employed middle-class non-drinkers.
>
> Finally, an explanation we can understand.