tw-rl

1/ Mafia Bonds 101 The @FT (h/t @MilesMJohnson) published an amazing story this week on bonds backed by the cash flows from Italian mafia operations. It’s a hilarious story of financial chicanery, so is the subject of this week’s Friday Funny thread. Here’s Mafia Bonds 101!

2/ Imagine you are the don of a nice, upstanding (and financially-savvy!) Italian mafia family. Like all good mafias, you operate a wide array of businesses, including several that provide “legitimate” services to the government. You bill the government for these services.

3/ But you’re a mafia, you have to have some fun! So you also do some extortion and fraud in these billing practices. The invoices are extorted. Mafia fun! The government, unsurprisingly, was slow or late in paying these invoices. So you decide to get mafia creative!

4/ These invoices have expected cash flows, you reason, so there must be a market for them. As it turns out, there are enterprising investment bankers packaging up pools of these late government invoices, issuing bonds backed by their future cash flows. “Lol finance!” you say.

5/ The bankers tout the “asymmetric risk reward profile” of these Mafia-backed bonds to investors. They sell the bonds, landing you a nice lump sum (and clipping themselves a hearty fee, of course!). “Finance is wild LMAO,” you laugh, while lounging on your brand new yacht.

6/ So to recap, we have an Italian mafia family, extorted invoices, creative securitization, and greedy investors chasing yield. Ah, the joys of modern finance! Here’s the link to the article. Kudos to @FT @MilesMJohnson for uncovering the amazing story! https://www.google.com/amp/s/amp.ft.com/content/bcebd77c-057b-4fd0-bd99-b97e0e559455