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The Economy in the eyes of the Southwest Inn and the Pioneer Saloon

 



The following comment was emailed to me from Duffy Witmer, CEO of The Pioneer Saloon in Ketchum, Idaho.  Duffy was responding to my earlier blog, regarding our economy.  I have worked with Duffy and the Witmer family for over 20 years; we meet monthly to discuss the economy and the impact on The Pioneer Saloon and The Kneadery, as well as family planning issues.  Duffy has been an inspiration on  running the Southwest Inn at Sedona.  This comment would be funny, if it were not so sadly true.

Heidi is the proprietor of a bar in   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, but pay later. Heidi 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. Soon she has the largest sales volume for any bar in Detroit. 

By providing her customers   freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and 
beer, the most consumed beverages. Consequently, Heidi'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 Heidi's borrowing limit. 

  He sees no reason for any undue concern because 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 DRINK BONDS. 

  These "securities" then are bundled and traded on international securities markets.

Ignorant naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are 
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 still are 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 Heidi's bar. He so informs Heidi.

Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics -- they cannot pay back their drinking debts.

Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their   jobs.

Overnight, DRINK BOND prices drop by 90%.

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 Heidi's bar had granted her generous payment extensions and had invested their 
firms' pension funds in the BOND securities.

They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds.

Her wine supplier also claims bankruptcy, closing the doors on a family business that had   endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the 
 brokerage houses and their  executives are paid HUGE bonuses and bailed out by a multi-billion dollar no-strings attached cash infusion from the government.

The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never   been in Heidi's bar.



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