Seriously, I'll pay you back.

December 18, 2009 12:36 AM

The easiest billion dollars you'll ever make.
posted by From Bklyn (34 comments total)

If history has taught us anything it's that when it comes to get-rich-quick schemes nothing can possibly go wrong.
posted by Kattullus at 12:41 AM on December 18, 2009

"So you should have no problem raising that $1 billion of equity."

Statements like this is why people don't really respect sell-side research analysts.
posted by mullacc at 12:41 AM on December 18, 2009 [2 favorites]

Ponzi is rolling in his grave.
posted by Blazecock Pileon at 12:47 AM on December 18, 2009

Sell side research always makes me laugh.
"This is a certain BUY!"
"Why?"
"Because I'm selling it to you!"
"Hmmmm"
"No really, I went to college! Look, my report! its got graphs and everything!"
posted by Damienmce at 12:55 AM on December 18, 2009 [1 favorite]

The biggest problem is at the beginning -- STEP 1: Form a bank.

He should know better, as getting the necessary banking license in this economic environment will no doubt be more difficult that raising a billion dollars.

Keep in mind this is done state by state, so its not as simple as "form a bank", especially so if you'd like to avoid messy federal raps that prohibit carrying out business across state lines without a valid banking license.

In New York, at least, this will be done via New York State Banking Department. Note that their process for obtaining a New York State banking license may and no doubt will be different, in small and not-so-small ways, from, say, California. Or the other states.

Anyhow, each State's regulators will tell you precisely what to do to go about securing a license. Minimally this will include some type of notice detailing services you'll be offering to the public as well as your business plan.

After this they'll deliberate on your application. There more than likely will be more than one in person meeting, with professional banking regulators who will not be predisposed towards approving your plan; as we all know, the trend is away from small, single branch banks towards nationwide conglomerates. While you might expect the regulators to be especially hostile towards individuals with no banking background, that slight omission may actually be construed as a plus in some states.

I have no idea where he came up with that price tag of $1B for equity; that seems excessive for fully paid in share capital.

Another option would be to go offshore, but while no doubt faster and easier, this would seriously limit your access to capital lent by The Fed. Regulatory costs here would be much, much lower, I've heard of Class B banking licenses in some of the off shore domiciles only requiring $100K, although you should budget about $1M all in.

Of course with a Class B you're not going to be marketing to or approaching US domestic customers; now you're back to getting licensed in each state so the price as well as the PIA factor sharply increases.

I think there are easier ways to make money.



STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%

Oh this is crappy advise as well. Given the bubble that's is the US Treasury market right now you seriously don't want to be at the long end of the yield curve; it will end in tears.
posted by Mutant at 1:40 AM on December 18, 2009 [13 favorites]

First, make a million dollars. Second, don't pay taxes.

It's even funnier today.
posted by Clave at 1:46 AM on December 18, 2009

I just read this post and thought to myself, "Self, you should post this to MetaFilter"
Then I realized I'd just done some laps of circular logic, but if everyone plays along...

1. Check MetaFilter.
2. Read post on MetaFilter and then post post on MetaFilter.
3. ???
4. Profit.

Mission accomplice!
posted by hypersloth at 1:48 AM on December 18, 2009

Is this better than the author's previous attempt of actually cheerleading pump-and-dump dotcom companies during the tech boom?
posted by amuseDetachment at 1:57 AM on December 18, 2009

Packer once said "you only get one Alan Bond". Maybe he was wrong, and there's a whole nation-full?
posted by pompomtom at 2:55 AM on December 18, 2009

This obviously isn't intended to be actual investment advice, it's trying to show you what a crime these 0% interest rates are.

But, that said: this is terrible advice for someone who actually still wants to be in business in ten years. You're borrowing short and lending long, which is just about the stupidest thing you can do. This is a good chunk of what wrecked Fannie Mae and Freddie Mac.

But there's big bonuses in it, which you can bet is pulling plenty of Wall Streeters into that trade. They know the Fed will telegraph interest rate rises far in advance, because never surprising anyone or doing anything unexpected is a hallmark of the Greenspan-era Fed, and Bernanke is unlikely to change that. So they'll believe, probably correctly, that there will be plenty of time to exit the trade without taking too much of a bath. And if enough bankers are in that position, they'll be Too Big To Fail, and should the Fed raise rates for everyone else, they'll get bailed out with super-cheap money to get them out of the jam they got into with super-cheap money.

As a bank or other big player, you can do even better, at least temporarily, by borrowing dollars and investing abroad. This is called "the carry trade". The carry trade is part of why dollars are so weak right now, and if it ever starts to unwind, it will strengthen dollars a great deal for awhile.

Of course, getting access to that flow of damn-near-free money isn't easy; only the big players get free money. Normal people have to pay banks for the right to use something that was created out of thin air at zero cost.
posted by Malor at 3:40 AM on December 18, 2009 [6 favorites]

So if every Mefite kicked in $10000 we'd be on our way...
Count me in if I get to be Vice President of Offshore Investments.
posted by bystander at 4:16 AM on December 18, 2009 [1 favorite]

Ooh! We get to pick titles? I call dibs on Vice President for Internal Development of External Assets.

Or CFU. I'd quite like to have the job title CFU.
posted by Kattullus at 4:25 AM on December 18, 2009 [1 favorite]

Who said, "What is robbing a bank compared with founding a bank?" Some commie, probably.
posted by wobh at 4:35 AM on December 18, 2009

well burst my bubble, why don'cha? now i have to go back to Plan A: write hit song, collect royalties for life. and yes, i *know* that won't rake in a billion dollars, but i'll struggle through somehow.
posted by msconduct at 5:09 AM on December 18, 2009

This is indeed free money unless:

a) curves continue to steepen (which means even more frr money for someone in the future)

b) short rates average >4.5% for the next 30 years.

which do you think is likely?
posted by fistynuts at 5:31 AM on December 18, 2009

All banks by definition borrow short and lend long, the money in your chequeing/current and deposit/savings accounts can be removed by you at any time. In practice few people do thus allowing banks to lend long and people can get mortgages and stuff as opposed to saving up for 30 years. Banks!=bad in every situation.
posted by Damienmce at 5:43 AM on December 18, 2009

Alright! Who's in?
posted by mazola at 6:35 AM on December 18, 2009

Damienmce -- "All banks by definition borrow short and lend long, the money in your chequeing/current and deposit/savings accounts can be removed by you at any time."

Absolutely and the maturity mismatch is a particularly fascinating problem that banks struggle with almost constantly.

There are two main tools employed; changing rates offered on deposits (liabilities) to attract or repel funds as needed, against rates charged for loans (assets), once again to either attract or repel borrowers.

While on the surface this seems pretty simple - (Need to increase funds to insure you meet regulatory capital requirements? Offer higher interest rates on deposits. Got too much money that you can't deploy effectively? Offer lower rates on deposits. Need to increase the amount of interest income you're generating? Offer lower rates on loans to attract borrowers. Got too much exposure to a specific sector or product line? Offer higher interest rates on loans so borrowers will go elsewhere) - this is a very difficult game in actual practice since, as mentioned, the overwhelming majority of a banks capital base effectively carries a maturity of zero, being a demand deposit and all.

This problems is especially acute in the hyper competitive major markets (and lets not even introduce the complications internet banking has caused) but, fortunately, asset/liability management (ALM) is one of the more established components of a retail banks risk management practices. By some measures one of the oldest, it would seem.

Curious, but we never studied ALM at Business School (probably was my degree though, as it was very capital markets/econometrics intensive), in fact I never really heard of the discipline until I started working. I picked up what (very little) I know on the job, so I'd be interested if anyone in this thread has formally studied the topic and if so via what type of degree. This is such an under appreciated part of finance as it is oh so central to a banks liquidity and ability to function as an ongoing concern.

We used Zenios and Ziemba's Handbook of Asset and Liability Management: Theory and Methodology and while it certainly was comprehensive, accessibility was suspect for some topics. I wonder what better books on ALM have been published, as I'd like to learn more.

You know I missed the ALM reference and considering the maturity mismatch is something most laymen are totally confused about I'm wondering now if Blodget really wrote the article? Its pretty damn crude for lots of reasons, especially so fistynuts very good points.
posted by Mutant at 7:02 AM on December 18, 2009 [3 favorites]

All banks by definition borrow short and lend long,

And bank runs do indeed destroy banks. This is why the FDIC was invented.

Banks!=bad in every situation.

Of course not. But that doesn't change the fact that borrowing short and lending long is inherently risky.
posted by Malor at 7:02 AM on December 18, 2009

Mutant: "The biggest problem is at the beginning -- STEP 1: Form a bank."

This is obviously not meant to be a serious suggestion: the point is that this is what existing big banks are doing right now. Money being leant to the banks by the Fed is mostly being parked in treasuries and earning the spread. Little to none of it is getting out into the wider economy which was the avowed purpose of pouring all this money into the banks in the first place. (Admittedly most of it appears to be going into short term rather than long term treasuries, so the spread is smaller.)

STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%

Oh this is crappy advise as well. Given the bubble that's is the US Treasury market right now you seriously don't want to be at the long end of the yield curve; it will end in tears.

Of course it's crappy advice: that's the point. This is all pretty much guaranteed to blow up in the banks (and by extension our) faces at some point in the future, but thanks to the structure of bank employee renumeration they don't care! They'll have made off with the short term profits in the meantime, and if their bank blows up it thanks to the long term risks they took with borrowed money it won't be their problem.
posted by pharm at 7:36 AM on December 18, 2009 [2 favorites]

Can't I just ask Bill Gates to drop a billion into my bank account?

That'd be easier. Not saying he'd do it, but it'd be easier.
posted by bwg at 8:02 AM on December 18, 2009

I dunno. This might cut into my World of Warcraft time.
posted by Halloween Jack at 8:12 AM on December 18, 2009

What's the most disgusting about this whole environment of banking and entrepreneurship these days to me anyway is that I end up feeling like I'm losing out at my chance at millions or billions for just not being a big enough asshole.
posted by kalessin at 8:16 AM on December 18, 2009 [3 favorites]

Interesting Fool backstory to Henry Blodget. And, more recently, his supposed rehabilitation.

This article is interesting too. Does it confirm my suspicions that the financial system is constantly being tweaked to favor massive wealth, while minimizing actual risk to that wealth? Or does it simply show that the Fed is de facto subsidizing the banking industry by loaning money at a far lower rate than they borrow it back at?

What's the most disgusting about this whole environment of banking and entrepreneurship these days to me anyway is that I end up feeling like I'm losing out at my chance at millions or billions for just not being a big enough asshole.

Take heart. It applies to the world at large as well.
posted by mrgrimm at 8:31 AM on December 18, 2009

Who said, "What is robbing a bank compared with founding a bank?" Some commie, probably.

Bertolt Brecht? I'd never heard that quote before, but I just looked it up and have seen "It is easier to rob by setting up a bank than by holding up a bank clerk." (Hm. Maybe not easier, but it's a hell of a lot more effective.)

Marxist, yes. Communist, no. Called in front of the HUAC in 1947, he stated he had never been a party member ... and then relocated to East Germany for the rest of his life.
posted by mrgrimm at 8:39 AM on December 18, 2009

Does it confirm my suspicions that the financial system is constantly being tweaked to favor massive wealth

Well, consider this: who got bailed out of the jam? The wealthy experts that were supposed to know this stuff, or the ordinary homeowners, or most of the small-scale lenders?

Given the bailouts, the property bubble amounts to one of the largest thefts in hstory; the people who made it all happen skated with their wealth intact, and the system that made it possible unchanged, while the people on the other sides of the trades got scalped.
posted by Malor at 8:46 AM on December 18, 2009

STEP 5: Buy $10 billion of 30-year Treasuries paying 4.45%

Oh this is crappy advise as well. Given the bubble that's is the US Treasury market right now you seriously don't want to be at the long end of the yield curve; it will end in tears.

The gist of the article is: yeah, it will end badly but by the time it does you'll have hopefully paid you and your co-workers over a billion in bonuses. With this 'scheme', if you are well connected enough to get a banking license and raise billions in capital, you should be able to make free money off the fed.
posted by delmoi at 9:00 AM on December 18, 2009

What's that old saying - given $10, making $1000 is almost impossible. Given $1,000,000, it's inevitable.

Also, what's the other old saying - oh yeah, TRANSACTION COSTS. I wonder how Bloget drives to work every morning in his world where there's zero friction.
posted by GuyZero at 9:46 AM on December 18, 2009

I'm not sure what's up with people treating this like serious advice and scoffing at the idea that it would work.
posted by codacorolla at 10:44 AM on December 18, 2009

Although, immediately after posting, I realised that it was basically a serious idea, and it did work for a handful of people.
posted by codacorolla at 10:44 AM on December 18, 2009

It's simple advice at it's core - play the spread on rates with a lot of capital and watch the money roll in. The whole "start a bank" thing kind of does get hand-waved away though, yeah.
posted by GuyZero at 11:34 AM on December 18, 2009

Count me in if I get to be Vice President of Offshore Investments.

I call Undersecretary of Special Projects.
posted by electroboy at 2:22 PM on December 18, 2009

I want to be Vice President of Kickin' It
posted by Mental Wimp at 3:52 PM on December 18, 2009

HEATHER CHANDLER
That's pretty very. Now check this out. You
win five million dollars from Publishers
Clearing House, but on the same day Ed
McMahon gives you the check, aliens
land on earth and say they're going
to blow up the world in two days.
What would you do?

KEITH
That's easy. I'd just slide that wad
over to my father. He's like one of
the top brokers in the state.

VERONICA
Wake up. In two days, Earth's going
up like a Roman Candle. Crab Nebula City.

KEITH
Man, in two days, my dad could
double my money. Triple it.
posted by the painkiller at 8:14 PM on December 18, 2009