Mortgage Meltdown in layman's terms

Thursday, June 18, 2009 at 10:59pm

DISCLAIMER.... I did not write this. It is going around the internet in email form and did not have credit to the author. Clever, funny and true

A TUTORIAL ON DERIVATIVE MARKETS

Subject: Heidi is the proprietor of a bar in Detroit . In order to increase sales, she decides to allow her loyal customers - most of whom are unemployed alcoholics - to drink now but pay later. In a ledger, she keeps track of the drinks consumed (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 Detroit . 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 2000 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, who collect enormous fees on their sales, pay extravagant bonuses to their sales force, who in turn purchase exotic sports cars and multimillion dollar condominiums.

One day, although the bond prices are still climbing, a risk manager at the bank (subsequently fired due to 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 so claims bankruptcy. DRINKBONDS and ALKIBONDS drop in price by 90 %. PUKEBONDS perform better, stabilizing in price after dropping by 80 %. The decreased bond asset value destroys the bank's 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, and 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 ...

Thursday Afternoons with Ted at Panera in Simi Valley

Thursday, April 16, 2009 at 2:17pm

Watch on Thursdays for my Status updates on Facebook & Twitter as to when I arrive at Panera.

This is your opportunity to come down, hangout and talk about Simi Valley and Real Estate. If you have questions or just want to discuss what is up in our city this is a great time to kick back in a very informal atmosphere to meet people and learn form each other. For now, I will try the mid afternoon times and see how it works out. If you think there is a better time, then let me know in the comments for this note.

Also, if you you just want to come down and socialize, I like to talk computers, cameras, videography, cooking, Fishing....all kinds of topics!

I Look forward to meeting new people and seeing those of you I already know! Bring your computer if you want there is WIFI provided here.

Why I am not allowed to be "Unplugged"! LOL!

Tuesday, April 14, 2009 at 8:18am

Apparently A Candian Company registered "Real Estate Unplugged" and they asked me to take that off my picture. So now I guess I am just Ted Mackel Unplugged!

Isn't being unplugged that the opposite of Tech and the internet? One thing I have come to understand in my life is the english language is dynamic and words change sometimes quickly and sometimes slowly. While the unplugged terminology was used in a context where big time musicians would perform more acoustically in a more "intimate" setting, my meaning for my Real Estate activity is a play or spin of the same idea.

I am Unplugged because I am mobile, I am available to meet anywhere, I can access information from the front seat of my car, to the nearest Starbucks. I am not confined nor do I confine my clients to a single meeting place to help them reach their goals. So in a sense I am not tethered. I know how to take full advantage of the tools offered today in computing and bring that to the home buyer or home seller.

Chris Brogan made one of the most accurate comments about my industry, he said

"Real Estate is a human business. You don't need me to tell you that. What you might hear from me is that the online tools of the trade have shifted dramatically in the last few years, and while you were out selling, the way people interact on the Web went and changed on you." (From the book Twitter for Real Estate Twits 2009)

Next, because I can get out and reach people in other ways than traditional business models I can create a more "intimate" experience for people looking for help with real estate.

So I dedicate my Facebook page to you. Hopefully I can provide some value so I can have more than a handful of "Facebook Fans". There will be something here for four different groups and you could belong to one, a combination of a few or all four. That is Home Owners, Home Sellers, Home Buyers and Business Professionals.

Home Owners- You don't have to be in the buying or selling position to be interested about Real Estate. I do interesting things and tend to photograph or videotape along the way. I put in a whole house fan and posted the event on my blog. I just got done putting in retrofit window in my house and should have some video up on that soon. My video reports on the local economy are helpful.

Buyers and Sellers - No mater where in the process you are there will be information here and on my blog http://www.homebuysblog.com to help you in your process.

Business Professionals - If you are trying to figure out how to use some of the tech tools I use in business, then hang out here and you can learn from all my trial and error. I will post some of the seminars I do throughout the year and you are welcome to come, just make sure to RSVP as my venue has limited seating.

Thanks for adding my Page to your Facebook!

Ted Mackel - Simi Valley, CA Real Estate Guy's Notes

Mortgage Meltdown in layman's termsJun 18, 2009

Thursday Afternoons with Ted at Panera in Simi ValleyApr 16, 2009

Why I am not allowed to be "Unplugged"! LOL!Dec 11, 2009

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