Why The Average Person Could Never Pull Off Mark Cuban's Massive Yen Short

Michael SetoWe recently reported that Mark Cuban refinanced every last dollar of his debt into Japanese Yen.

There are two reasons to do this. One is that interest rates in Japan are very low. The other reason is that it’s a yen short. If the value of the yen collapses (as it has been) then over time it become cheaper and cheaper to pay back the loan.

So obviously we wanted to figure out how anyone could do the same bet. Would it be possible for a homeowner to refi their mortage in yen, so that as the yen falls their mortgage gets cheaper?

We asked around.

Unfortunately, it looks like this financing scheme is only available to the ultra-wealthy.

Prior to the new Dodd-Frank financial regulations, there were two ways to go about doing what Cuban did.

The first was called a cross-currency swap. This is a financial derivative that involves paying someone to borrow money from a different currency.

For example: You give a bank X dollars, the bank gives you Y yen, you pay the bank TIBOR (the Tokyo Interbank Offered Rate, aka the cost to borrow yen), the bank pays you LIBOR (the London Interbank Offered Rate, used for dollars). When the loan comes due, you get back your X dollars, the gets back its Y yen. 

But with the advent of Dodd-Frank, these types of swaps became highly regulated. You must now have at least $10 million to your name to pull one off — not a problem for Cuban, but a slightly larger hurdle for the rest of us.

The other way  — still legal, as far as we know — is to find a retail U.S. bank with access to the foreign currency reserves of your choice that would also be willing to sell you a foreign currency loan. You can also pull this off if you already own assets in the currency in which you want to borrow.  

But banks offering such products are now extremely rare. Foreign currency loans bankrupted mum-and-pop types across Europe who took out mortgages at then-cheaper rates that subsequently spiked. 

As one source told us:

The Hungarians just borrowed in CHF (Swiss francs), converted to their own currency, and prayed the foreign exchange rate wouldn’t hurt them when they had to make their CHF payments.

But in an arguably rare act of self-policing, most banks have since eliminated such products.  

Basically, if you were hoping to refinance your debt at Japan’s interest rates, just forget about it.

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