Year 1989.

Elon Musk is 18 and just emigrated from South Africa to Canada.

His brother Kimbal joins him.

The two Musk brothers would read the newspaper and find interesting people they would like to meet.

They would cold call these people and ask to meet them for lunch.

One of the people they called was a top executive at Bank of Nova Scotia, Peter Nicholson.

Nicholson accepted their request because it was so rare that young kids would be so bold.

Nicholson said, “I was not in the habit of getting out-of-the-blue requests. I was perfectly prepared to have lunch with a couple of kids that had that kind of gumption.”

It took 6 months to get on Nicholson’s calendar.

The Musk brothers took a 3 hour train ride and showed up on time.

Peter Nicholson’s impression: “They were so determined.”

Nicholson gave Elon a summer internship.

Elon was working for the head of strategy at the bank and was asked to look into the bank’s third-world debt portfolio.

Bank of Nova Scotia had billions of dollars of it.

Some of the countries had defaulted in the years prior and the bank wanted Elon to determine what the debt was actually worth.

While researching, Elon stumbled upon an obvious business opportunity.

The United States had tried to help reduce the debt burden of a number of developing countries through Brady bonds.

With Brady bonds the U.S. government basically backstopped the debt of other countries.

Musk noticed an arbitrage play. This is what he said about it:

I calculated the backstop value, and it was something like fifty cents on the dollar, while the actual debt was trading at twenty-five cents. This was like the biggest opportunity ever, and nobody seemed to realize it.

He called Goldman Sachs and spoke to one of the main traders in this market.

Elon asked how much Brazilian debt might be available at the 25 cents price.

The trader asked Elon how much he wanted.

Elon said $10 billion dollars worth. The trader said that was doable.

Musk hung up the phone:

I was thinking that they had to be fucking crazy because you could double your money. Everything was backed by Uncle Sam. You can make billions of dollars for free. It was a no-brainer.

He sprinted up to his boss’s office and pitched the opportunity.

His boss told Musk to write up a report.

The bank’s CEO rejected Elon’s proposal because they had been burned by Brazilian and Argentinian debt in the past.

Elon was stunned:

I tried telling them that’s not the point. The point is that it’s fucking backed up by Uncle Sam. It doesn’t matter what the South Americans do. You cannot lose unless you think the U.S. Treasury is going to default.

They still didn’t do it.

Elon’s big takeaway from this was that bankers were rich and dumb.

This experience gave him confidence when he was building PayPal. This is how Elon describes it:

Later in life, as I competed against the banks, I would think back to this moment, and it gave me confidence. All the bankers did was copy what everyone else did. If everyone else ran off a bloody cliff, they’d run right off a cliff with him. If there was a giant pile of gold sitting in the middle of the room and nobody was picking it up, they wouldn’t pick it up, either.

I learned this by reading Elon Musk: Tesla, SpaceX, and the Quest for a Fantastic Future

Source — quora.com