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So the concept of fractional reserves and securitisation have been receiving increased exposure but it is still a confusing concept.

Now one Debtfree DIGI reader has submitted a funny article explaining how weird it really is:

 

How Banking and Securitisation work

A New Zealand girl successfully auctioned her virginity for R30,000 to pay her university fees. She did it wrong. This is how she should have done it:

When it came to “doing the deed” she should have told the guy that she sold her virginity to that she had already accepted money from nine other bidders. Legally, it was still “her first time” due to fractional reserve lending principles which allowed her to lend virginity she didn’t have. However, she actually could not sleep with him, only “promise” to sleep with him because if she did the deed, this would deplete her reserve capital and thus place her in an insolvent position.

Then, she should have found 10 male models and formed a syndication called a “Special Purpose Position” (SPP) and slept with all nine models in exchange for money which the SPP paid her immediately up front. This is called a “true sale” agreement.

When the other nine original bidders came to collect on her, she would inform them that she had already sold herself to the third party syndicate, and that they were welcome to approach the nine male models to collect from them instead.

Because technically “her first time” was her reserve base and her innocence was still intact, selling herself to the SPP freed up her balance sheet to fractionalise her virginity another nine times over. Then she sold those nine to another syndicate and this happened over and over again. Despite the fact that she peddled in an illegal activity, legally she had no problem convincing a Judge that she was still as pure as the driven snow, because (technically) she was still a virgin.

Meanwhile, the SPP sold shares in the girls never-depleting virginity and traded them on the stock exchange and bond markets worldwide. Their biggest client was a Maori pension fund. To protect the fund, a local brothel insured the syndicate and promised to “pick up the slack” if there were any unsatisfied investors. Furthermore, just to make sure that scheme never unraveled, the Maori warriors would seek out any original bidder who did not meet their obligations, and sell that person’s house, cars and furniture on auction. They would then split this “bonus loot” with the girl, the SPP and themselves.

Remember, the original bidders enjoyed the benefit of having the “promise” of the nine male models to fall back on. So legally they were obliged to pay up… or else the Maori enforcers would come after them. 

This is pretty darn close how the banking and securitisation funding process actually works.