No. 832
The Next Password is Dill



Helga is the proprietor of a bar in downtown Detroit. She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now and pay later. Helga keeps track of the drinks consumed on a ledger (thereby granting her customer’s loans). Word gets around about Helga’s “drink now, pay later” marketing strategy and, as a result, increasing numbers of customers flood into Helga’s bar. Soon she has the largest sales volume in Detroit.
By providing her customers freedom from immediate payment demands, Helga gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most popular consumed beverages. Consequently, Helga’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 Helga’s borrowing limit. He sees no reason for any undue concern, since 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” are then bundled and traded on the International Securities markets. Naïve investors don’t really understand that the securities being sold to them as “AA” “Secured Bonds” are really debts of unemployed alcoholics. Nevertheless, 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, even though the bond prices are still climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Helga’s bar. He informs Helga, who suddenly demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts.
Since Helga cannot fulfill her loan obligations, she is forced into bankruptcy. The bar closes and Helga’s 11 employees lose their jobs. Overnight, DRINKBOND prices drop by 98 percent. 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 Helga’s bar had granted her generous payment extensions and had invested their firm’s pension funds in BOND securities. They find they are now faced with having to write off her bad debts and with losing more than 95 percent of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that has endured for three generations, her beer supplier is taken over by a competitor who immediately closes the local plant and 150 workers are laid off. Fortunately, though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multi-billion-dollar no-strings attached cash infusion by the government.
The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Helga’s bar. There are winners and losers here. Does this story sound familiar? A special word of thanks to my friend Bud Green for sharing this with us.
(EDITOR'S NOTE: Jim Davidson is a public speaker and syndicated columnist. You may contact him at 2 Bentley Drive, Conway, AR 72034. To begin a bookcase literacy project visit www.bookcaseforeverychild.com. You won’t go wrong helping a needy child.)

The Next Password is Dill