Tuesday, December 1, 2009

The benefits of financial innovation

As an idea, financial innovation is probably as unpopular as it gets right now. However, whenever you have a demand for capital and an unused supply, you can bet a market connecting the two will emerge.

And so it has come to pass in a small East African town called Haradheere. If you're not familiar with the name, you're surely familiar with its occupants - Somali pirates. Demand for cash and equipment to power their operations is so high, a stock market has sprung up. One participant invested a rocket propelled grenade and has so far been repaid $75,000 in 38 days. Given that an RPG costs about $3000 (according to Google), that makes for an annualised IRR of roughly 13,749,518,825,092,100,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000,000% per annum.

No doubt the smart money is already there...

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