Monday, February 12, 2007

Living The Borrowed LifeTM

I had a great idea last night. It was Sunday and the prospect of another Monday at work, digging up beetroots and cabbages, focused my mind to less toilsome means of enrichment. (OK, so I’m not really a farmer – but I toil just as hard. Well, almost).

I figured I could easily convince my banker to extend a loan on the value of my house. Did I say “convince”? Heck, those guys nowadays are throwing money at anyone who can hold a pen or fog a mirror and I can do both, plus walk and chew gum. Therefore, I am an excellent credit risk. The bank manager is an agreeable fellow who makes bonuses based on volume, so he’s not too particular about appraisals and such. We agreed that my 15-year old 98 m2 apartment out in the booniest of boonies, the one I got from my great-aunt Edna when she passed away last summer as she was picking cucumbers, is worth…325.000 euro. We picked a nice round number (it could even be true, honest!). I’ll borrow just 300.000 euro against that – let’s not be greedy, eh?

As luck would have it, this bank is belatedly trying to break into the mortgage business and is offering dirt cheap rates, slightly below O/N LIBOR, fixed for 2 years (what are they gonna do, make it up on volume?). After that, it’s going to LIBOR +125 bp, but hey, two years? That’s like, science fiction time horizon. Space Odyssey vee-eye-eye stuff. But I’m not finished yet – you see, I don't want to pick another root vegetable for as long as I live.

Here’s what I’m gonna do, instead: I will deposit the cash with another bank (I seem to have lots of friends in banking these days) one that will let me write some credit default swaps on Ecuador bonds on 10:1 leverage. Happy days: annual income comes in at 1000 bp on 3.000.000 worth of bonds. That’s 300.000 euro per year, if you’re not too friendly with finance.

But am I a spendthrift fool? Oh no! Instead of wasting my money on fast cars and slow women, I’ll make do with just the slow women and re-invest the rest. So, year two I’ll have 450.000 to invest and my income will likewise jump to 450.000. On year three I will be up to 750.000 and on year four I’ll gross 1.350.000 (ain’t exponential finance grand?).

On the fifth year I will be collecting 2.550.000 euros and that’s when I will draw the line. I am a man of modest needs and high risk aversion – it’s not as if I will be plunging into junior securities like OTC stocks. Strict association with senior securities like bonds and mortgages for me, thank you very much. What did you take me for, a speculator?

All right, all right…so I did stretch reality a bit above. My great aunt’s name was not Edna.

But as for the rest, just call your friendly bank's dealing room and casually mention synthetic CDO's, CDS, CPDS...and soon your rutabaga will be served on a plate alongside crevettes flambees avec anise et poires.

Because you too should be Living The Borrowed LifeTM

Warning: Hey kids, don't try this at home. You will end up burning down the whole town.


  1. Hmmmm, yes, "living the borrowed life"...

    wasn't there a movie with Tony Curtis years ago about that, and then Leonardo DiCaprio also a few years ago about that?

    In the movies it was about borrowing another person's identity or profession in order to make money and feel good about himself. But in this context it's about borrowing money to maintain an image of a borrowed life.


  2. The movie I saw was with DiCaprio, who was kiting checks all over the place and assuming all kinds of identities to stay one step ahead of the FBI - true story by the way.