Introducing the Expensive Loan Option

I’ve always wanted to invent my own derivative. I realize some of you may think that’s strange, but for a finance geek like me, it’s only natural. And I think I’ve come up with a good one.Three_Card_Monte crop ZioDave

It’s for people without appropriately large emergency funds to live off if they lose their job or otherwise fall into financial distress. I call it the Expensive Loan Option, or ELO.   The way it works is that you pay me a fee of $X per year and I guarantee that you will be able to get a loan at any time during that year for $5X at 20% interest. So, for example, if you want to be sure of being able to borrow $10,000 at 20% interest at any time during the next year, just pay me $2000 and you can sleep soundly.

Excited?  Well, of course you are.  Perhaps you have a nice job and enough liquid assets to pay four months of expenses should something nasty happen.   That’s okay, but the Fabulous Suze Orman has told you that you need eight months worth of liquid assets.  No problem!  Just buy an ELO from me.  If it costs you $3500 a month to support that glam lifestyle of yours, then just sign up for a $14,000 ELO for the modest fee of only $2800.  I take PayPal.

I’ve extensively tested this program with a focus group, so I know all the objections.  A young lady in the group (age 11) didn’t think it was a good idea because she misunderstood the terms.

But, Daddy, if I have a job, what are the odds that I’ll be laid-off and then not be able to find work for four months?  If the chances of that happening are less than 20%, then the 20% you are charging me makes this a bad bet, doesn’t it?  Isn’t that what you’ve been teaching us all those afternoons you take us to the dog track?

Silly girl.  Takes after her mother.  This would only be a logical objection if I were giving you the $14,000 in the case that you needed it.  In fact, I am only guaranteeing that you will be able to borrow that money, if you want to, at the modest interest rate of 20%, which, let’s face it, isn’t a bad deal for an unemployed deadbeat such as yourself. And you can’t put a price on that kind of peace of mind.

I’m really very excited about this new venture.  I’ve got calls into the already mentioned Suze Orman and my good friend Brett Arends from the Wall Street Journal.  I am sure both of them will be enthusiastic supporters of this product and will want to tell their readers all about it right away.  (As discussed here on this blog, both have previously written on a similar topic.)

This might even be the start of something big for me.  Maybe a new firm to sell all sorts of miracle derivatives to consumers.  I could hire some of the brilliant financial engineers recently laid off from AIG, Lehman Brothers, and Bear Stearns.  All I need is a name for the new outfit.  Fools and Their Money, Inc.?

[Photo: ZioDave]

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