Harley-Davidson plans to sell $600 million of what?

Harley-Davidson plans to sell $600 million of ABS bonds.

Do not get confused, Harley-Davidson does not plan to sell bonds with a build in Anti Blocking System to facilitate breaking your motorcycle on wet roads, no, they plan to sell a product that may result its buyers to fall flat on their face and loose their money.

The ABS in these bonds stands for Asset Backed Securities, something that sounds very safe, but actually these ABS are one of the many reasons why the financial systems worldwide are in such a mess, as they feed the snowball system of unsustainable lending.

Let me try to explain: Harley-Davidson wants to sell motorcycles, that’s their mission, and for this, they need to find customers with enough cash to fulfil their dreams. Most of these customers, lets call them Harley-dudes, will go to their bank and ask for a loan to buy the overpriced bike of their dreams.

As the Banker-dude knows the grumpy old Harley-dude very well, and is not impressed by his recent credit history, he says NO. The Harley-dude now may be disappointed that he doesn’t get the shiny Electra Glide he can not afford anyway, but even more disappointed is Harley-Davidson, and the Harley-workers, as they start to have no work.

But the clever Chief Financial Officer, the CFO-dude at Harley-Davidson, comes up with a great idea: Harley-Davidson themselves will lend the cash to Harley-dude, so he now has the cash to buy his dreams.

At first it seems everybody is happy, Harley-dude gets his Electra Glide, Harley-Davidson sold one, Harley-workers have a job and are paid by the money Harley-Davidson gave to the Harley-dude who gave it back to CFO-dude who gave it to his Harley-worker.

Hold on, where did Harley-Davidson get the money it gave to Harley-dude from in the first place?

Well, from the Banker-dude, who didn’t want to lend money to Harley-dude, but is happy to lend it to Harley-Davidson, because its CFO-dude is such great guy and has lots of Harley-properties and land to offer as security.

So as long as Harley-dude pays on his loan to CFO-dude in time, all is fine, and many Harley-dudes get Harley-cash to buy Harley-motorcycles.

But remember, grumpy old Harley-dudes are not the most trustworthy, the Banker-dude did not want to give money to Harley-dude in the first place, he did not trust him, and suddenly the Banker-dude tell the CFO-dude at Harley-Davidson: listen friend, you give too much money to these Harley-dudes, that is very risky, I will now stop to give you money, because your property and lands are worth less then all the Harley-dudes owe you and you owe me.

CFO-dude is understandably quite disappointed, as he sees his motorcycle sales go down the drain. But Banker-dude has a brilliant idea: Harley-Davidson should be selling ABS bonds, where the “assets” securing the interest and repayment of these bonds are those unreliable payments by the Harley-dudes.

In addition, to make the private investment by Grandma and Grandpa into Harley-dude’s dreams more attractive and allow CFO-dude to sell many more motorcycles, the whole toxic structure is sprinkled with high interest rates, individual tranches, long disclaimers, worthless guarantees and high credit rating agency sugar coating.

And suddenly, there are only winners, Harley-Davidson sells motorcycles, Harley-workers have work, old grumpy Harley-dudes can still not afford but are getting their Glides and Kings, and the Banker-dudes continue to make huge bonuses.

Now lets just hope for the buyer of these “simple” Harley-Davidson ABS bonds that the house of cards on which they are build doesn’t collapse again and Harley-dude doesn’t crash his Electra Glide uninsured and keeps paying. Because maybe, the buyer is a Harley-dude himself…


One Response to “Harley-Davidson plans to sell $600 million of what?”

  1. Cracking stuff Axel. Clearly not rocket science. Nothing like focusing on the small picture. Oh, hang on a minute…

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