STEP 1: Form a bank.
STEP 2: Round up a bunch of unemployed friends to be
STEP 3: Raise $1 billion of equity. (This is the
only tricky step. And it's not that tricky. See below.*)
STEP 4: Borrow $9 billion from the Fed at an annual
cost of 0.25%.
STEP 5: Buy $10 billion of 30-year Treasuries paying
STEP 6: Sit back and watch the cash flow in.
At this spread, you should be earning at least 4% per year on your
$10 billion of capital, or $400 million. Sure, there's some risk that
the Fed will grow a backbone and raise short rates, but there's not much
risk. (They have an economy to
fix and banks to secretly recapitalize). And in any event, if the Fed
raises short rates, making your $1 billion will just take a bit longer. (And if they REALLY raise rates, causing you to actually lose money, it
will be someone else's problem.)
You'll have made $400 million in a single year! So pay yourself a
fat salary for all your hard work. And pay your "bankers" fat salaries
for all their hard work (But don't worry--your bankers won't actually
have to do anything. You'll just need one of them to borrow the money
from the Fed and buy the Treasuries, which he will be able to do
part-time.) At the end of the year, celebrate. It's bonus time!
Don't be greedy. Pay yourself and your bankers the industry-standard
compensation ratio of 50% of revenue. Your revenue was $400 million,
so that creates a $200 million bonus pool. Pay each of your unemployed friends
bankers, say, $1 million. And give yourself the rest for being such a
smart entrepreneur and creating all the jobs and value.
Now, you've already made at least $150 million, so it doesn't really
matter what happens next. But you're in this for the world's easiest $1
So proceed to Step 7.
STEP 7: Go public. After bonuses,
your bank will be earning about $200 million a year, your capital ratio
will be super-strong (10% equity-to-debt!), and your balance sheet will
be clean as a whistle (all risk-free Treasuries!). So you ought to be
able to persuade investors
to pay you at least 20-times earnings, or a valuation of $4 billion. Sell 25% of the company for $1 billion.
STEP 8: Use your $1 billion of new equity to borrow
another $9 billion at 0.25% from the Fed. Buy another $9 billion of
Treasuries. Collect another $400 million a year. Pay yourself and your
team bonuses that are twice as large as last year's. You deserve it! And you're now about $500 million to the good.
STEP 9: Wait for your stock to double or triple,
which won't take long given your amazing growth trajectory and clean
balance sheet. When your market cap hits $10 billion, sell another 10%
of the company for $1 billion. Now you're really ready to grow.
STEP 10: If you want to get fancy and get nice
profiles written about you in business magazines, start buying branch
networks from defunct banks (the FDIC will pay you to take them) and
start making actual loans. Also, start hiring trading desks to gamble
on things more exotic than Treasuries. Yes, all this sounds risky, but
just remember--the risk isn't yours, and you're already $500 million to
STEP 11: Sell $500 million of your stock to a
"strategic investor" and let the rest ride. Don't worry, if your
traders and loan officers turn out to be idiots or the Fed suddenly
raises rates, the taxpayers will handle it. And you've already made
your $1 billion.
So, congratulations, you're now a billionaire! Now all there is left
to do is celebrate!
* If you've been paying attention, you will note that the only
potentially tricky step in this process is the "raise $1 billion of
equity." Where, exactly, are you going to get $1 billion of equity? Well, you will have to do some selling there.
Basically, you'll have to tell a few investors about your awesome new
business plan (see above) that will earn them returns of at least 20%
on their equity from Day 1. A 20% return on equity is a lot, especially
when the return is largely risk free. So you should have no problem
raising that $1 billion of equity.Given the government's desperate desire to get banks to start lending
again, you might also want to try to hit up the government for some
funds. The pitch will be simple: Old banks aren't lending because
they're hiding embedded losses and need to protect their balance
sheets. You don't have that problem. You'll use the equity to LEND. (And you will use it to lend! You don't have to say that you're going
to lend it to the US government. None of the other banks are saying
Via Business Insider