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I was playing pool with my buddy Geldmus the other night and we ended up playing a new game we called Guurtball. We were at his house watching over his almost year old little guy while his Susan was visiting her aunt to visit, chat some, and watch their favourite reality show's season finale. 

Well they call them reality shows, but I think that's more marketing than anything. I've heard that if you look behind the scenes, you'll find most of them have pre set scenarios and are in fact scripted. After editing to make everything look as real as possible, they end up as produced as most other shows. Except of course you don't pay for the "talent" in front of the camera. And from what the underpaid whistle blowing writers say, they don't pay much for the talent behind the camera either. This leaves lots of profits on the table for the producers who make the rules and own the show.

Anyway, back to the pool table and Guurtball. The 1,5,8,9,10,11, 13 and 14 were used in the game, for no other reason than it gave us two yellow balls, two orange balls, the black eight ball, and a blue, a red and a green striped ball. I never did like the purple and burgundy coloured ones. Besides, scoring in Guurtball involves adding up ball values, so we wanted to minimize the number of balls on the table while being able to maximize the available points. This meant the low 2,3 and 4 solids were out too.

We racked with the 5 ball on the foot spot. Behind the 5 we lined up a row of two balls, and behind that a row of three balls. Then behind this triangle we placed the 8 and 13 balls so that the rack was arranged to look like an arrow with a small tail, pointing straight at the cue ball. Total points available in the game was 68, because the 8 ball was worth only 5 points, and unlike the game 8-ball, it had to be sunk before any other ball was downed. Once the 8 ball was gone, you could go after any ball except the 5 and the 13, which had to be downed last in that order. Every shot had to be called, and before you could sink a ball in any inning, you had to hit the 5 ball first so that it banked at least twice. Sinking the 5 or 13 prematurely lost you the game, as did sewering when attempting to sink either one, or when banking the five. Sewering on any other shot simply brought the cue ball, and the sunk ball if there was one, back onto the table. Got all that?

Not surprisingly, I lost. You see Geldmus plays a lot. He was even able to tell me that way back in 1845 the then 26-year-old John Moses Brunswick first encountered a pool table. JM was a Swiss immigrant who'd settled in Cincinnati and made carriages. But he'd always been flexible in what he produced, and prided himself on his abilities, often saying "if it is wood, we can make it, and we can make it better than anyone else." His shop turned out its first billiard table within a few months and satisfied customers spread the word. Over four generations the family turned out pool tables like the one we were playing on, and had turned Brunswick into the world's largest recreation company, generating more revenue from its pool tables, bowling products, and boats than any of its competitors.

Now despite the fact I admired JM's attitude and accomplishments, I really didn't care much for knowing more about the table's background. I was simply trying hard to sink a few balls on it. Its like our cleaning lady at home, Onnalee Whirkrfercash. When she vacuums around the house, she only cares about how well it cleans, not about the machine's innards, casing or company history. But try as I might, and despite the fact I made up most of the rules, I lost all except two of the games we played and one of those, Geldmus sewered. But I didn't mind. I enjoy the game of pool and Geldmus did have home advantage. And it really was a nice table.

Afterwards we sat drinking a few beer, and among other things we talked about was what was out there in financial products. Geldmus is a financial advisor so he knows lots about what is out there. We talked about structured financial product, having gotten there by way of tax shelters, and shifted to banks and their "guaranteed linked notes". They are a banking product where the principal is guaranteed at maturity, and the returns are linked to an underlying benchmark portfolio or index; in this particular case returns generated by an underlying mix of income trusts off course affected by government legislation and general market turmoil. After 4 years, the bank can, at its option, redeem the note for a stated return, say 10%. But if you hang on to maturity, the return can be greater, less, or zero, depending on the performance of the underlying income trusts and what they ultimately become.

Now the banks loved these things, because they never buy any of the underlying bench mark securities. In fact, the proceeds are used for "general banking purposes". What this means is that they can, via the magic of "reserve requirements", turn your $100,000 into several $100,000 by borrowing more. In fact, the more restrictions they put on an investor's ability to get their money back before a maturity date, the more $100,000's of thousands they can create by borrowing more. The "general banking purposes" maybe ends up being a loan to the bank's brokerage arm, which invests the money. Say they decide to take your $100,000 and the turn it into $500,000. As long as they are doing their jobs right, by using methods such as hedges, calls, puts and standing first in line when market news breaks, they can easily generate 20% in after tax compounded annual returns, meaning that after 4 years, they've turned the $500,000 into about $1,070,000.

If they've done their jobs well, after 4 years they will redeem your $100,000 and give you $146,410, your 10% compounded, 4 year return. You made $46,410, and are happy, even more so because the bank has generously decided to forego those pesky management fees. The bank on the other hand makes out like a bandit. Out of the total gain of $570,000, it pays you $46,410, and is left with just over $520,000 before expenses such as juicy sales commissions to brokers and agents that make these investments so popular. After repaying interest of say another $200,000 on the $500,000 they'd borrowed, this is exactly what happened.

You gave them $100,000 and got back $146,610. They took your money and, owning none of it, made $370,000. If they have not done a good job, or if the market takes a nose dive, they may not redeem and hold on for the full 8 years and hope the second 4 year period works out better for them.

In the meantime, there is this benchmark portfolio that keeps trading on the stock exchange. At the end of the 8 year period, this "basket" of securities is worth a certain amount of money per share on the open market. Now of course you never owned any of these securities, so you never earned the dividends or any of the income these trusts were set up to distribute, nor can you sell them at the end of year 8. But you can add up what they're selling for at that time, and if it is worth more than $100,000, that's great, that's what you get. If not, you get your $100,000 back. Of course the bank is betting they earn far more for themselves than this awesomely great fantastic income trust based benchmark return they'd gushed to you about.

It was then that I fully understood how to win playing Guurtball. It was not enough to make up a new game, I had to also own the pool table. Home advantage was all about knowing the room, the table, which cue to use, and exactly how to touch the balls just so. Just like the banks. They can make up new financial products with intricate rules designed to increase their chance of winning, but they can only guarantee the win because they own the banking system, the brokerages, the insurance arms etc. And they know exactly how to touch our hot spots; 10 percent returns, guaranteed capital, unlimited upside if the income trust market stays hot, no management fees....

Just like our cleaning lady, we think we're doing a great job cleaning up. Just don't look at the innards too hard.