| 23 November 2008
Reading last week about the 'alternative alternatives' investment sector -
weather derivatives and so forth - it came to me that the markets are missing
out on the biggest and most stable income flows of all, that's to say your salary
and mine.
Right now the banks won't lend, stock markets are in terminal free fall, and
most countries are going to go bust, so it's really hard for all those unemployed
brokers and analysts to earn enough money to feed their Porsches and keep their
lovers in cocaine. So here's my idea.
Let's say you're a Belgian dentist, with an income flow of a quarter of a million
dollars a year (you're not a very good dentist) and you need extra cash to buy
a new high-tech chair. You go to the dentists derivative agency and they rate
your future income stream and bundle it with all the other Belgian dentists'
income streams. Hey presto, there's a new security called Belgian Dentists A
which can be bought, sold or traded.
You get an issuance fee of the present value of 1% of the forward income stream,
say USD100,000, which buys your new chair and then some, and agree to pay 1.5%
of your annual income to the broker for ever. The broker then sells Belgian
Dentists A to the market, making his turn, and makes a market in it.
A whole industry has been invented overnight, with brokers, analysts, underwriters,
traders, rating agencies, credit default swaps, you name it. You're home free,
because you don't owe anybody anything. If you decide to go AWOL and grow tomatoes
in Wales for a living then Belgian Dentists A will take a hit, but AIG will
pick up the tab courtesy of the US Treasury.
You have been reading an entry on the following blog:
Penelope Wise
Penny Wise but not Pound Foolish! But remember: I am not offering investment advice. My comments are just for your general information; I do not recommend investments, and you should take professional advice before entering any investment contract.
Penelope blogs on investment and financial services around the world: mainstream and alternative. Contact: penny@lowtax.net
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