Investment Banking Explained

(This is floating around, I didn’t write it)

Young Chuck moved to Texas and bought a donkey from a farmer for $100.
The farmer agreed to deliver the donkey the next day.
The next day the farmer drove up and said, ‘Sorry Chuck, but I have some bad news, the donkey died.’
Chuck replied, ‘Well, then just give me my money back.’
The farmer said, ‘Can’t do that. I went and spent it already.’
Chuck said, ‘OK, then, just bring me the dead donkey.’
The farmer asked, ‘Whatcha gonna do with a dead donkey?
Chuck said, ‘I’m going to raffle him off.’
The farmer said ‘You can’t raffle off a dead donkey!’
Chuck said, ‘Sure I can. I just won’t tell anybody he’s dead.’
A month later, the farmer met up with Chuck and asked, ‘What happened with that dead donkey?’
Chuck said, ‘I raffled him off. I sold 500 tickets at two dollars apiece and made a profit of $898.00.’
The farmer said, ‘Didn’t anyone complain?’
Chuck said, ‘Just the guy who won. So I gave him his two dollars back.’
Chuck now works for AIG where he’s about to get a huge bonus!

One Reply to “Investment Banking Explained”

  1. An alternative explanation…

    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 and as a result increasing numbers of customers flood into
    Heidi’s bar.

    Taking advantage of her customers’ freedom from immediate payment
    constraints, Heidi increases her prices for wine and beer, the
    most-consumed beverages. Her sales volume increases massively.

    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. 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 of the
    bank, (subsequently, of course, fired due his negativity), decides that
    surely the time has come to demand payment of the debts incurred by
    the drinkers at Heidi’s bar. 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.

    And, for the icing on the cake – the funds required for this purpose are
    obtained by a tax levied on non-drinkers.

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