If hedge funds kept cows, your milk would go sour

LONDON: A famous series of jokes attempts to define political systems. In communism, for example, you have two cows, your commune seizes them and charges you for milk. In a democracy, you have two cows, the cows outvote you 2-1 to ban all meat and dairy products, and you go bankrupt and starve to death. Similar thinking can be applied to financial markets. Here, then, is the world of money recast in bovine terms.

Leveraged buyouts

You have two cows. You come home from the fields one day to find Henry Kravis chatting with your spouse at the dining-room table. Two days later, you have no spouse, no farm, and no table. Two guys the size of sumo wrestlers have saddled up the cows and are riding them around.

Currency market
You have two cows. China has 1 trillion cows. Guess who sets the price of milk?

Derivatives

You have two cows. You repackage five of them into a Collateralised Lactating Obligation, pay for a AAA credit rating, slice the CLO into 10 pieces and sell it to investors, skimming the cream from the milk for yourself. Three of the cows fall ill, and the credit rating plummets. You get to keep the cream.

Hedge funds

You have two cows. A guy in an open-necked shirt drives up in his Bentley and offers to take care of them for you in return for a year���s supply of steak and 50% of their milk. They won���t be allowed to leave his compound for two years. Six months later, you have half a cow, producing sour milk. ���You have to be willing to lose rump today to get rib-eye tomorrow,��� the hedge-fund guy mumbles.

Bond market

You have two cows. One is Brazilian, one is Australian. They yield 25 quarts of milk per day. That���s half as much as three years ago, when you traded your less-lactiferous German and US cows for them. You are thinking of swapping for a pair of Namibian cows. They only have three legs but, hey, they produce 26 quarts per day.

Pension-fund management

You have two cows. How boring is that? You pay a month���s supply of milk to a consultant, who advises you to sell one cow and buy two aardvarks instead. The aardvarks die. The consultant charges you four months of your (now reduced) milk supply and advises you to sell half of your remaining cow and buy a wombat. The wombat dies. The consultant charges eight months of milk for a copy of his new report, ���Two-cow strategies for alleviating the impending pensions crisis.���

Credit-Default Swaps

You have two cows. You buy insurance against them dying, and tuck the contracts into the middle of that tottering pile of documentation on your desk. One dark night, Henry Kravis sneaks off with your cows. By the time you track down the paperwork, your now worthless contracts have expired.

Interest-Rate Swaps

You have two cows. You pledge one of them to me as collateral in a swap for some of my pigs. I pledge the cow to my neighbour as collateral in a swap for some of his sheep. He pledges the cow to his cousin as collateral in a swap for some of his cousin���s goats. Better pray the livestock market doesn���t crash and we have to try and round up that cow.
Economics

Assume two cows.

Goldman Sachs Group

You have 26,467 cows. Some have more hay than they could ever hope to eat. Others aspire that one day they would have more hay than they could ever hope. The cows with the most hay end up with big government jobs.