The Ruricolist is now available in print.

Financial Innovation

“Why on earth would I want to put more money in a fund now?” he asked the cold caller.

“Qwant isn’t just any fund. We’ve been working with MontéBank to solve the credit crisis.”

“How are you going to do that?”

“We’ve had a team of top minds from the Endower Institute working on the problem for months. They’ve developed a completely new securitization model – the LBS. It’s a drop-in replacement for the MBS. Nobody else know how to do this yet – this is opportunity knocking.”

“An MBS, that’s a…”

“Mortgage-backed security. The LBS is completely different – it’s a whole new way of thinking about the problem. None of the downsides of the MBS.”

“No risk of homeowners defaulting, you mean?”

“None at all – returns are guaranteed with volume. This has nothing to do with homeowners. It’s a sure thing.”

“So there’s no debt involved?”

“Oh, well, yeah, sure it’s a securitized debt – but there’s no risk of default.”

“How does that work?”

“Well, I don’t want to get into the mathematics, but you can trust me on this one. We’re all smart people here.”

“But just how does it work?”

“Well, sure, I could give you a lecture, but this thing is hot – it’s moving – and I’ve got a lot of calls to make, so are you in or out?”

“What’s you name?”


“Well, Ben, I just have a few questions. LBS – that’s a something-backed security, right?”


“So what’s the L stand for?”

“You want me to put it in a nutshell for you?”


“It’s like a microloan.”

“So it’s for developing nations?”

“No, no. This is all domestic.”

“So what are the microloans for?”

“OK.” Cough. “These micro-loans are made to eligible parties throughout the country in order to purchase diverse kinds of government debt instruments.”

“You mean Treasuries?”

“No – Treasuries are no way to get rich.”

“What kind of bond then?”

“No. Bonds are old hat. We’re breaking new ground here.”

“Can you just explain it to me?”

“OK.” Cough. “We deploy advanced computer modeling on complex statistical data sets to ensure a high overall rate of return.”

“Statistical? What kind of government debt is statistical?”

“Well, there’s always ratios of risk and return to be calculated for any investment.”

“So… this is some kind of investment with a high – what’s it called – beta?”

“Yes. A great beta. Almost completely uncorrelated with the stock market.”

“But it follows interest rates.”

“It’s uncorrelated with those too. This is a total market-beater.”

“It’s not interest-bearing?”

“This is independent of the Fed.”

“What the hell is it?”

“It’s the future, and you’ve got the chance to get in on the ground floor. Now I think I’ve explained this to you pretty thoroughly. I’m going to need your decision or I’ll have to move on.”

“Government debt… no interest… statistical… microloans – you can’t be—”

“Don’t be small-minded, sir. The numbers are good. There’s always a payout, and we always get our cut.”

“I don’t care about the math. I’m not putting money into that.”

“Look, don’t be afraid of a name. Sure, I can say ‘lottery-backed security,’ but what matters—”