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If every Chinese citizen bought just 700 distressed credit default swaps …
Dear President Hu,
First of all, we want to extend our very best wishes to the entire Politburo for a harmonious and productive Fourth Plenary Session of the 17th CPC Central Committee, and for a successful fifth, sixth, 18th, 19th and so on. We at JPMorganStanleyCitiBankAmericaHSBCGoldman Ltd know the importance of continuity. Our firm can trace its roots to the 19th century, though recent events have compelled us to band together, change with the times and relocate for tax reasons to Iceland.
To those complimentary ends, we would like to propose a bold and unprecedented partnership. In exchange for a timely infusion of capital from your leading sovereign wealth funds (amount to be determined, though we hope you can demonstrate that the US$700 billion bailout in Washington was the feeble gesture of a declining power), we will undertake nothing less than a complete renovation of the Chinese financial system. We will dedicate thousands of our best investment bankers to this heroic task. We can work out details later, but here is a brief outline:
- We will help China create a full-blown consumer property sector, complete with relentless real estate agents, aggressive mortgage brokers and generous lenders willing to make long-term, adjustable-rate mortgages for 95 percent of appraised value on every lean-to and duck coop in the country to anybody who can sign his or her name, regardless of race, creed, credit history or class background.
- We will help China expand liquidity by creating a secondary market for said mortgages with the help of a new government-backed corporation. This entity, which for sake of discussion we will call the People’s National Mortgage Association, or Penny Mae, will separate the loan agreements from the underlying properties, bundle the former into securitized obligations and sell them to third-party financial institutions. As for the underlying properties themselves – well, many of them are tear-downs anyway.
- We will provide expert advice to those third-party institutions, including Western investment firms that we can sell you at a steep discount. Basically, we will slice and dice the newly created debt obligations and resell their pieces to fourth-party institutions. All this will, of course, be accomplished in off-balance-sheet transactions, so there will be no annoying regulators to impede our progress.
- Using proprietary computer modeling techniques developed for the US market, we will expand the pool of investment capital in China by turning those new financial instruments into spread options, credit default swaps, special investment vehicles, Libor-pegged reverse half-gainers and other wing-dings even we don’t understand. We will transfer this technology to China without the usual national-security restrictions, and we will train a new generation of homegrown Chinese investment bankers to take your country into the brave new world of unsecured derivatives, no-risk financing, golden parachutes, trophy wives, million-dollar birthday parties and private petting zoos.
- To seed the process, we will even provide – for mere fen on the yuan – a wide selection of subprime, Alt-A and other terrific loans, which we happen to have in our inventory.
- Our fees are in line with industry standards, but please note that we will require payment in gold or silver bullion stuffed in Shenzhen-made mattresses or forward energy contracts.
In the end, China will have a modern, 21st century capital market that will be the envy of the world. This model has been tested in the heat of crisis and, we believe, emerged unscathed. It is only because timid Western politicians intervened in the orderly workings of the market that our innovations were unable to have their intended, stabilizing effects on share prices, interest rates and year-end bonuses.
This is why we believe our approach is perfect for China. You and your Politburo colleagues can act decisively, without the constraints of voter reticence or, for that matter, voters. To get rich is glorious, a great statesman once said. But to make somebody else rich, that’s capitalism.
Yours sincerely,
Richard S Fuld and Daniel Mudd,
Co-Chairmen
P.S. As an added incentive, we will provide, free of charge, the services of our leading compensation consultants. They will devise an incentive-based rewards system for Politburo members that will more accurately reflect how hard you guys work in resolutely striving to serve the people.
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