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A new Financial Model

Written by A Forex View From Afar on Friday, May 02, 2008

A new Financial Model
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In the last few years a new financial model has been developed. It's called "too big to fail", and it's quite simple- there is nothing too complex here;

1. Generate cash the easy way.
2. Create an off-shore company, with the name 'Bank' or 'Hedge Fund' stuffed somewhere in the title (the more complex the better).
3. Issue some bonds, not too many, just a couple of thousand million. The triple A rating won't be hard to find at the local rating agency, they are six months behind the curve. Try to provide a better return than the market; a 10% offer will certainly do the trick. If possible try to pick bonds with a one time payment at maturity, you'll see why later
4. At the same time develop a very aggressive marketing campaign. Investors have to hear about you and someone has to buy those bonds you're issuing. make it really flashy.
5. Make sure you have an outrageous salary, and probably some off-shore accounts too.
6. By this point you have got yourself a couple of million Dollars, which you are going to invest in some more aggressive campaigns. But do not worry about the bond prices/value at this point in time
7. Doing this a couple of times (bonds issue + aggressive marketing) you get yourself assurance that you can pay the coupons at maturity, and by having new bonds (inflows coming in your books) you can assure to pay the older bonds at maturity.
8. Get a good lawyer and book-keeper, because you will need them both.
9. Use them both to dodge accounts and states law, and probably regulators too.
10. Here comes the interesting part, after doing this for couple of years and the investors trust you, have a big bond issue. We are talking in billions here.
11. Use that money to invest in shares/bonds/credits/everything owned by other financial institutions, but do NOT invest in your own flashy-named company.
12. Continue to buy into other companies, really get the paper trail as long as you can.
13. Some eyebrows should be raised at this point by investors and regulators. No need to worry though; that good lawyer coupled with your outrageous salary in off-shore accounts will probably save you from a death sentence.
14. At this point in time, you are “too big to fail”. In case something wrong happens speak with your Trade Desk department to sell some Call Options (to make money on the way down as your share price crashes). After the Fed jumps in, because they will want to save you from failing, make sure you mark those options.
15. At the end, the offshore accounts will still be yours, plus there are some possibilities to have a share in the new company that comes from the Fed saving your company from collapse.

See how financial innovations make the markets go around? This is a classic case, with the marketing parts inspired from Enron, and the “too big to fail” taken from Bear Sterns. 15 easy steps to follow.

The saddest part of it all is that it happened, is happening, and will continue to happen. Happy Days are here again!

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There is a constant question from some traders as to why anybody would ever need to consider the ‘F’ word when trading. Fundamentals: what is so damaging at looking at both Technical charts and having a Fundamental filter to gauge how many Lots to put on? Why is it that accepting that Technicals give us price points to trade, but Fundamentals determine the direction that we travel is so difficult for some traders to accept? Without a Fundamental Filter very few pure Technical traders would have seen this Dollar move coming today.

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