Beer Commissioner Speaks on the Financial Crisis
The Beer Commissioner loves money. The Beer Commissioner loves pontificating. The Beer Commissioner loves analogies. The current financial situation is just ripe for a blog. I have found most people have no idea what the financial crisis is about, or what caused it, or why the bailout is or is not necessary. So, I'm going to break down the financial crisis into an analogy that most people can understand, using Las Vegas, one of my favorite places as the example.
Suppose Las Vegas was in a bit of a recession. New politicians got elected to office in Nevada, and they wanted to jump start the economy. The Nevada government told the casinos of Las Vegas, they wanted to jump start tourism, and the government was going to guarantee the casinos against losses. The casinos in turn were very excited about this vote of confidence from the government, so the casinos started offering incentives to the customers to come to Las Vegas in the form of free hotel rooms, free meals, free show tickets and free-play incentives. The casinos started to boom. The local businesses around the casinos started to boom from all the extra customers. The restaurants were full with people.
At some point in time, some local government officials were worried about this fast growth, and they started asking questions related to what guarantees the state of Nevada was offering, and they started wondering what types of offers the casinos were making based upon these guarantees. These politicians were eventually voted out of office, as being out of touch, as the casinos and associated businesses were making so much money. Eventually casinos outside of Nevada wanted to get a piece of the action, but they were in states where there were no such incentives, so these casinos just started investing in the Las Vegas casinos. These casinos were told their investments were rock solid, after-all, it was a casino, and Nevada was guaranteeing their money. Well, these new investors, wanted some immediate returns on their money, so now the Las Vegas casinos were offering more and more incentives to get people to come to Las Vegas.
One such incentive involved a guy named Harry. Harry was a hard-working fellow, and one of the casinos sent him an offer to fly him and a guest to Las Vegas for the weekend. Harry was offered a hotel suite, all his meals, and $500.00 in free play. Harry knew this little girl Nancy, who he had been trying to get in the rack. Poor Nancy had just lost her job the prior week, and really had no prospects for a new job, and was in a bad mood, but she readily accepted Harry's offer for a free weekend away. Nancy's dad warned her about the trip to Vegas, and her financial state, and didn't think it was a wise move, but Nancy went anyway. Harry and Nancy got to Vegas and had a great time. They enjoyed the luxurious suite, the wonderful meals, and the great shows. Harry played all of his free-play credit, and lost another couple of hundred bucks. The pit boss saw how upset Harry was, and he saw how disappointed Nancy looked, as it appeared they lost all their money at 8:00 p.m. on a Saturday night. The pit boss told Harry and Nancy they could get a marker to play a lot longer, and they didn't even have to pay the marker off for 6 months. All they had to do was give the casino a check, which they would hold. Harry and Nancy thought this was too good to be true. Right then and there, the pit boss gave them both a marker for $1,000.00. Harry and Nancy actually won a little bit of money, but as they were browsing through the Forum Shops, Nancy noticed this Gucci purse she loved, and she bought the purse with her winnings, and Harry saw this framed Muhammad Ali title belt in one of the sports memorabilia stores that he had to have. Harry and Nancy both went home, both having enjoyed themselves immensely.
The casino was happy as well, as they had tons of visitors and tons of markers. The casinos showed all these markers to other investors, and the investors invested even more money, as the casinos started inviting more and more Harry's and Nancy's to Las Vegas.
At the next casino board of directors meeting, the CFO gave a report, that some of the markers weren't being paid, and maybe the casino ought to implement a policy when giving out markers to new players. The board of directors thought the CFO was 'just being conservative' and he was ignored. The casino kept operating business as usual.
Harry and Nancy's 6 months was up, and it came time for them to pay their marker. Of course, neither of them had the money to pay their marker, so they were sued for the money due. Harry and Nancy had judgments rendered against them, and Harry's belt and Nancy's purse were repossessed. Unfortunately, the belt and purse which they paid thousands for, only sold for $300 at the foreclosure auction. The casino looked to the State of Nevada to give it the additional $1700 the state had guaranteed them, but the State of Nevada said, we don't really have a procedure to pay you the money.
Around the same time, the CFO, told the board of directors, there were more and more Harry's and Nancy's out there, and not to expect the same profits we had in the past. The Board of Directors did not like the news, and they wanted a change, but they didn't want the change to upset or alarm the investors, so the Board of Directors gave the president of the company a bonus in the amount of 20 times his salary to 'retire'. Eventually the amount of Harry's and Nancy's has grown so big, the CFO can't make the numbers work in the books anymore without going to jail. All of the sudden, the biggest casino in Las Vegas files bankruptcy, then the next week, another casino files bankruptcy, and then one of the investors filed for bankruptcy. All of the remaining investors are screaming for their money. The casinos are looking at the State of Nevada to pay their guarantee. The State tells the other investors, we never made a deal with you, and the State of Nevada tells the casinos, we don't have a procedure established for the guarantees. Then Harry and Nancy tell the State of Nevada, they want them to do something, because the only thing they have left is their 401k, which was heavily invested in the casinos.
The State of Nevada then says, ok casino, we will give you 25% of your money, but in exchange for the money, you cannot give your president a raise, and you have to raise the room rate, and the food rate on Harry and Nancy if they want to come to your casino and give it to us. If the plan works, we will give you the additional 75% of the money, but you will have to agree to let us control how you run your casino, and agree to raise the rates on Harry and Nancy even more to come to your casino, and the casino will have to give that extra money to the State of Nevada as well. The State of Nevada also wanted to make clear to everyone and anyone who would listen, was that the entire problem was really with the CFO, and but for the CFO doing nothing, this never would have happened.
As of today, the State of Nevada voted that Harry and Nancy should not have to pay for the casino's bailout. I'm not sure where the story will end. As we watch this drama unfold, I have a few of recommendations, number 1, do not look at your portfolio. It can't be good for your heart. Number 2, stock up on your beer of choice. In these financial times, it is about the cheapest liquid around. Number 3, drink your beer of choice, and enjoy the baseball playoffs this October, and as the little deputy would say, 'root, root, root for the Phillies....'
Suppose Las Vegas was in a bit of a recession. New politicians got elected to office in Nevada, and they wanted to jump start the economy. The Nevada government told the casinos of Las Vegas, they wanted to jump start tourism, and the government was going to guarantee the casinos against losses. The casinos in turn were very excited about this vote of confidence from the government, so the casinos started offering incentives to the customers to come to Las Vegas in the form of free hotel rooms, free meals, free show tickets and free-play incentives. The casinos started to boom. The local businesses around the casinos started to boom from all the extra customers. The restaurants were full with people.
At some point in time, some local government officials were worried about this fast growth, and they started asking questions related to what guarantees the state of Nevada was offering, and they started wondering what types of offers the casinos were making based upon these guarantees. These politicians were eventually voted out of office, as being out of touch, as the casinos and associated businesses were making so much money. Eventually casinos outside of Nevada wanted to get a piece of the action, but they were in states where there were no such incentives, so these casinos just started investing in the Las Vegas casinos. These casinos were told their investments were rock solid, after-all, it was a casino, and Nevada was guaranteeing their money. Well, these new investors, wanted some immediate returns on their money, so now the Las Vegas casinos were offering more and more incentives to get people to come to Las Vegas.
One such incentive involved a guy named Harry. Harry was a hard-working fellow, and one of the casinos sent him an offer to fly him and a guest to Las Vegas for the weekend. Harry was offered a hotel suite, all his meals, and $500.00 in free play. Harry knew this little girl Nancy, who he had been trying to get in the rack. Poor Nancy had just lost her job the prior week, and really had no prospects for a new job, and was in a bad mood, but she readily accepted Harry's offer for a free weekend away. Nancy's dad warned her about the trip to Vegas, and her financial state, and didn't think it was a wise move, but Nancy went anyway. Harry and Nancy got to Vegas and had a great time. They enjoyed the luxurious suite, the wonderful meals, and the great shows. Harry played all of his free-play credit, and lost another couple of hundred bucks. The pit boss saw how upset Harry was, and he saw how disappointed Nancy looked, as it appeared they lost all their money at 8:00 p.m. on a Saturday night. The pit boss told Harry and Nancy they could get a marker to play a lot longer, and they didn't even have to pay the marker off for 6 months. All they had to do was give the casino a check, which they would hold. Harry and Nancy thought this was too good to be true. Right then and there, the pit boss gave them both a marker for $1,000.00. Harry and Nancy actually won a little bit of money, but as they were browsing through the Forum Shops, Nancy noticed this Gucci purse she loved, and she bought the purse with her winnings, and Harry saw this framed Muhammad Ali title belt in one of the sports memorabilia stores that he had to have. Harry and Nancy both went home, both having enjoyed themselves immensely.
The casino was happy as well, as they had tons of visitors and tons of markers. The casinos showed all these markers to other investors, and the investors invested even more money, as the casinos started inviting more and more Harry's and Nancy's to Las Vegas.
At the next casino board of directors meeting, the CFO gave a report, that some of the markers weren't being paid, and maybe the casino ought to implement a policy when giving out markers to new players. The board of directors thought the CFO was 'just being conservative' and he was ignored. The casino kept operating business as usual.
Harry and Nancy's 6 months was up, and it came time for them to pay their marker. Of course, neither of them had the money to pay their marker, so they were sued for the money due. Harry and Nancy had judgments rendered against them, and Harry's belt and Nancy's purse were repossessed. Unfortunately, the belt and purse which they paid thousands for, only sold for $300 at the foreclosure auction. The casino looked to the State of Nevada to give it the additional $1700 the state had guaranteed them, but the State of Nevada said, we don't really have a procedure to pay you the money.
Around the same time, the CFO, told the board of directors, there were more and more Harry's and Nancy's out there, and not to expect the same profits we had in the past. The Board of Directors did not like the news, and they wanted a change, but they didn't want the change to upset or alarm the investors, so the Board of Directors gave the president of the company a bonus in the amount of 20 times his salary to 'retire'. Eventually the amount of Harry's and Nancy's has grown so big, the CFO can't make the numbers work in the books anymore without going to jail. All of the sudden, the biggest casino in Las Vegas files bankruptcy, then the next week, another casino files bankruptcy, and then one of the investors filed for bankruptcy. All of the remaining investors are screaming for their money. The casinos are looking at the State of Nevada to pay their guarantee. The State tells the other investors, we never made a deal with you, and the State of Nevada tells the casinos, we don't have a procedure established for the guarantees. Then Harry and Nancy tell the State of Nevada, they want them to do something, because the only thing they have left is their 401k, which was heavily invested in the casinos.
The State of Nevada then says, ok casino, we will give you 25% of your money, but in exchange for the money, you cannot give your president a raise, and you have to raise the room rate, and the food rate on Harry and Nancy if they want to come to your casino and give it to us. If the plan works, we will give you the additional 75% of the money, but you will have to agree to let us control how you run your casino, and agree to raise the rates on Harry and Nancy even more to come to your casino, and the casino will have to give that extra money to the State of Nevada as well. The State of Nevada also wanted to make clear to everyone and anyone who would listen, was that the entire problem was really with the CFO, and but for the CFO doing nothing, this never would have happened.
As of today, the State of Nevada voted that Harry and Nancy should not have to pay for the casino's bailout. I'm not sure where the story will end. As we watch this drama unfold, I have a few of recommendations, number 1, do not look at your portfolio. It can't be good for your heart. Number 2, stock up on your beer of choice. In these financial times, it is about the cheapest liquid around. Number 3, drink your beer of choice, and enjoy the baseball playoffs this October, and as the little deputy would say, 'root, root, root for the Phillies....'
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