Thursday, March 12, 2009

Credit crunch: ‘Ugandanised’ Explanation.

A lot has been said about the raging credit crunch in mostly the Western Hemisphere, Star Traders’ puts some familiar names and scenarios to help its readership really understands this ‘thing’ that has taken on as the best excuse to explain cash matters be it by individuals or Corporations. Nice reading and please send your comments.

Nalongo is the proprietor of a bar in Luzira. 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 Nalongo's bar.

Taking advantage of her customers' freedom from immediate payment constraints, Nalongo increases her prices for waragi and beer, the most-consumed beverages. Her sales volume increase massively.

A young and dynamic customer service consultant at the Luzira UCB bank branch, called Musoke, recognizes these customer debts as valuable future assets and increases Nalongo 's borrowing limit.

Musoke sees no reason for undue concern since he has the debts of the alcoholics as collateral.

At UCB's corporate headquarters, expert bankers transform these customer assets into BELLBONDS,CLUBBONDS and WARAGIBONDS. These securities are then traded on securities markets in the East African Region. 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 (subsequently of course fired due to his negativity) of the bank decides that slowly the time has come to demand payment of the debts incurred by the drinkers at Nalongo 's bar.

However they cannot pay back the debts. Nalongo cannot fulfill her loan obligations to UCB and claims bankruptcy.

BELLBOND and WARAGIBOND drop in price by 95 %. WARAGIBOND performs better, stabilizing in price after dropping by 80 %.

The suppliers of Nalongo’s bar, having granted her generous payment due dates and having invested in the securities are faced with a new situation. Her waragi supplier claims bankruptcy, her beer supplier is taken over by a competitor.

UCB is saved by the Government following dramatic round-the-clock consultations by leaders from the governing political parties (and vested interests).

The funds required for this purpose are obtained by a tax levied on the non-drinkers.

Finally an explanation we can understand...

Thanks to Watmon Mike Kinyera for original forwarded message.