Jonathan Swift proposed a profitable trade in the corpses of Irish children. That’s the rudimentary markets of the 18th century for you. Today we can do much, much better.
Reuters ran the following item July 3:
RIGA (Reuters) – Ready to give your soul for a loan in these difficulteconomic times? In Latvia, where the crisis has raged more than in the rest of the European Union, you can.
Such a deal is being offered by the Kontora loan company, whose public face is Viktor Mirosiichenko, 34.
Clients have to sign a contract, with the words “Agreement” in bold letters at the top. The client agrees to the collateral, “that is, myimmortal soul.”
Mirosiichenko said his company would not employ debt collectors to get its money back if people refused to repay, and promised no physical violence. Signatories only have to give their first name and do not show any documents.
“If they don’t give it back, what can you do? They won’t have a soul, that’s all,” he told Reuters in a basement office, with one desk, a computer and three chairs.
If souls can be used as collateral, why can’t the loans be securitized? Individual loans could be sold to a trust and the trust could issue securities. Moody’s and Standard and Poor’s could rate different tranches. Assuming a maximum default rate of 30%, it would be perfectly safe to assume that 60% of the securities would be rated AAA, with a 10% BB, 8% BBB, 7% single-A and 5% AA-rated tranches to provide a buffer. Of course, if the borrowers came into the loan office with a notarized statement by a member of the clergy stating that the immortal soul in question was in good standing, the ratings agencies no doubt could be persuaded to accept a much thinner band of credit protection. The market quickly would learn to distinguish between pools of “prime” immortal souls and “subprime” immortal souls.
Just as in the mortgage market, ” liars’ loans” might be an issue: what if the borrower already had lost his or her immortal soul and in effect was engaged in double collateralization? Presumably the additional interest paid to bondholders would fairly compensate them for the incremental risk.
Collateral might be re-assigned from dubious souls to pure ones. The economic value of schoolchildren is negative (they cost money rather than earn money), but their potential value could be realized by assigning the collateral on loans to dodgy, sinful types to eight-year-old children.
Forget human trafficking in sex slaves. Forget even Swift’s proposal to make babies into bacon. We are talking about cash flows that are not merely perpetual, like the capital securities of banks and insurance companies, but eternal. How can you go wrong?
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