Mary is the proprietor of a bar in Dublin. She realises that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronise her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later. She keeps track of the drinks consumed on a ledger (thereby granting the customers loans).
Word gets around about Mary's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Mary's bar. Soon she has the largest sales volume for any bar in Dublin.
By providing her customers freedom from immediate payment demands, Mary gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Mary's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognises that these customer debts constitute valuable future assets and increases Mary'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, ALKIBONDS and PUKEBONDS. These securities are then bundled and traded on international security markets. Naive investors don't really understand that the securities being sold to them as AAA secured bonds are really the 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 Mary's bar. He so informs Mary.
Mary then demands payment from her alcoholic patrons, but being unemployed alcoholics they cannot pay back their drinking debts. Since Mary cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and the eleven employees lose their jobs.
Overnight, DRINKBONDS, ALKIBONDS and PUKEBONDS drop in price by 90%. The collapsed bond asset value destroys the banks' liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community.
The suppliers of Mary's bar had granted her generous payment extensions and had invested their firms' pension funds in the various 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 respective executives are saved and bailed out by a multi-billion euro no-strings attached cash infusion from their cronies in Government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, non-drinkers who have never been in Mary's bar.
Now, do you understand economics in 2010?
Credits: Bill Bonner and The Daily Reckoning
I guess these are the very reasons why "unemployed alcoholics" were chosen to graphically represent this bunch. 
But it's more complex because fractional reserve lending allowed pyramiding the asset values and all that high-level financial hocus-pocus. Fractional reserve lending is still completely alive and well, although it's other side - deleveraging - is a painful process. Alcoholics were only the trigger for the collapse which would have happened anyway, if not because of lending standards then perhaps by defaults in derivatives, another, bigger, volcano, or something else.
No - the failure was not *caused* by alcoholics, it was only *triggered* by them just like a trigger-button is only responsible for letting the payload "loose", not for the size of payload or the extent of damage that it can cause. It's clear that the whole financial structure that was built on the original debt was highly leveraged and not sustainable. The potential for a massive failure has been built into the very structure of economy whereby someone somewhere (Bernanke, Trichet etc.) determines the "proper" interest rates, the amount of money in circulation, etc. while simultaneously profiting the people closer to the issuer of credit via inflation applied to the rest of the society.
Both the Fed and European Central Bank are trying to be in business doing something that they can not possibly control - the functioning of the entire economies via interest rate fine-tuning. By definition, if they were capable of doing their jobs properly and if there was no pyramiding of credit that is currently collapsing, we would not be experiencing the depression. It's easy to blame the alcoholics, it would have been easy to blame a volcano, but the fact that a huge potential for a huge collapse still exists (and more so than before) is for some reason not seen as such. The problem is the collapse potential, not alcoholics or volcanoes; the system should be able to withstand any of such triggers.
So what is it - "Printing Money" or "Imaginaring Money"? Not sure at all, but at least it will not cause a slowdown in Global Warming!
Economics 301
Statistics and Graph Courtesy of www.shadowstats.com
The trouble with this story is that it perpetuates the myth that the failure was caused by providing credit to "unemployed alcoholics." The vast bulk of mortgage backed loans were made to comfortable middle class employed people who don't have a clue about the effects of compound interest and how rapidly their payments would escalate into the unaffordable by bankers who did understand this, didn't care and were not:
1) legally obliged to take their net household income into account and not exceed 30% of that value in total repayments to all lenders - irrespective of interest rates.
2) legally obliged to provide insurance for mortgage repayments while the house owner is unemployed.
3) legally obliged to provide a schedule of expected payments showing date, payment amount, interest serviced by payment, capital debt reduction by payment, for the life of the loan allowing people to compare it to their expected income to determine affordability.
Just those 3 measures, none unfair, would have prevented both the "housing bubble" and limited the harm from the inevitable collapse caused by the Bush Wars drawing too many resources and far too much value from the economy and giving nothing back to it. They would also have prevented the bankers from raping the world by screwing 15 to 40 years of profits out of the market in just a few short years, money we will be repaying for decades. Most significantly, they would have prevented the collapse which has led to an unemployment rate exceeding 20% (despite some 1.4 million employable people being removed from the economy to engage in foreign wars), meaning that many of those previously employed and able to pay their mortgages are now unemployed and unable to do so. Whose fault is that?