

How To Make The World's Easiest $1 Billion - bobbyi
http://www.businessinsider.com/henry-blodget-how-to-make-the-worlds-easiest-10-billion-2009-12

======
tsiki
Can't be done, and here's why: the 0.25% rate he's referring to is the federal
funds rate, which is the rate banks borrow/loan money from/to each other. You
don't just "borrow from the Fed". Most loans between banks are very short-
lived, for example a bank might want to loan money to a major company but
doesn't want to wait days or weeks until it has enough in reserves, so it
loans the money from another bank. Because the loans are very short-lived and
are usually between established banks, they're also very cheap compared to the
loans offered to the public. The interest rates of the loans are also
negotiated between banks. Now, when you take the fact that, in this case, the
borrower would be a complete unknown, and especially the fact that this loan
would be for a much longer period than what is usual, 0.25% is impossible.
Hell, you could be the Goldman Sachs and be lucky to get under 5% for a
30-year loan.

(TL;DR: can't loan that much money with a rate that low for 30 years)

~~~
stevedekorte
You don't need to take any loans at all - the bank with $1B in deposits could
just "loan" a subsidiary $9B to buy US treasuries with via the magic of
fractional reserve banking. Then it's earning 4-5%.

The real problems I see with the plan is that 1) that rate is on 30 year
treasuries - so you don't get income immediately and 2) inflation may exceed
the return on those treasuries.

Why not just use $3B of the $9B the fed let's you effectively print to buy
300% overpriced assets (say, mortgage bonds) from shadow companies you and
your buddies own and lend the rest to whomever eg: loans for overpriced homes.

So you spent $1B on the bank, $1B on the assets and sold the assets you sold
for $3B. You end up with $1B in profit (100% ROI) and who cares about what
happens to the rest?

~~~
coliveira
> 2) inflation may exceed the return on those treasuries.

This is not an issue, because you are getting 4% on borrowed money, which
means you are really getting 40% on your money.

It doesn't matter how thin the margin is, as long as you can leverage the loan
with borrowed money. This is essentially what every bank does.

~~~
stevedekorte
That's a good point and a much simpler way to make good returns.

------
pmorici
So basically this is just an elaborate shell game that allows the government
to pump a bunch of no strings attached money into the big banks and make it
look like they are paying back the tax payers TARP bailout money when in
effect the only thing they are doing is calming the public outrage that would
ensue if they just gave the money to the banks outright with no strings
attached and no expectation of repayment.

~~~
patrickgzill
Pretty much.

------
Slashed
Can you really borrow $9B against $1B at such low rate? Obviously, I'm missing
something here.

~~~
dpatru
This is called fractional reserve banking. It's how fiat money is created. In
my experience, if you understand it, you're either benefiting from it and
support it, or you're angry about it and a Ron Paul supporter.

~~~
bobbyi
This isn't about fractional reserve banking.

If the bank could only lend out 100% as much as it had, it would still be
making free money here by borrowing from the government and lending the money
back to the government at a higher rate.

~~~
dpatru
The key to the money-making scheme is access to very cheap money from the
federal reserve (what you're labeling as government) and lending it to the
government (what you're calling the government.) The fed and the government
are not the same thing. If they were, the government would not have to borrow
money from the banks. It would just get it directly from itself.

So I think this is about fractional reserve banking because this is what
enables the borrowing/creation of money at below market rates. If a bank had
to buy its money on the open market like everybody else, it would have to pay
more than what the government pays for money because it's a greater risk.
Without a fractional reserve/fiat money/central bank system, a bank would not
be able to borrow money at essentially 0% in a credit shortage.

~~~
ars
Sorry, but you have no idea what you are talking about.

That is not fractional reserve banking. Maybe go and actually read what it is
before posting about it?

~~~
mattmaroon
Reading and thinking are hard. Understanding the complexities of our global
financial system is even harder. Repeating economic "wisdom" you gleaned from
a YouTube video of an obscure doctor-turned-Congressman that made the front
page of Digg, then assuming everyone who doesn't agree with you is either
uninformed or evil, is easy.

------
dimitar
The first thing I want to ask when I hear something about easy money, is:
"Then what stops everybody from doing it?"

~~~
dpatru
I think everybody is not doing it because 1) most people don't understand it,
2) it's not easy to form a bank, and 3) although banks can easily get money
for loans, they will be shut down if the loans are not paid back.

Because new money is created whenever a loan is created, the cost of money is
artificially low. This discourages savings and encourages debt. So even though
there are massive amounts of money to be made with a bank, I think that it's
pretty hard to come up with the capital needed to open a bank. In this sense
being a banker is like being a drug dealer. You can make a lot of money, but
you can't consume what you sell. If you do, you end up being just another
customer, a buyer not a seller.

------
j_baker
No process is easy when step 1 is "form a bank".

------
leelin
Wait, it's very easy to borrow at short term rates (3M LIBOR) and then receive
fixed long term rates (30 Years). It's called an interest rate swap.

<http://en.wikipedia.org/wiki/Interest_rate_swap>

And no, simply receiving on 30Y swaps is not a sure path to money. Sure you
will probably pick up carry in the first year or so, but eventually you need
to get out of the trade (or take on the risk for 30 years), and if LIBOR /
Treasuries sell off you'll have to pay a hefty amount to unwind.

------
ctingom
Phase 1: Collect Underpants

Phase 2: ?

Phase 3: Profit

