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Thomas J. Barrack Jr, but he likes to be simply called Tom, is one of the few financiers who can, during a giant global crisis, make money. Twenty years ago, during the 1988 crisis, he and David Bonderman bought most assets owned by Resolution Trust corporation, a vehicle used by the American government to place the assets of the savings banks which had gone bust. Back then, Bonderman and Barrack shared their tasks. The first took the good assets, the latter took care of the so called bad bank, i.e. the sale of problem assets. Both of them gained billions. In other words, to understand better the current crisis and where it is best to invest, a good idea could be that of following Barrack's lead. "The present global crisis", explained Barrack to Milano Finanza which met him in his luxurious home-office of Rome in Piazza dell'Ara Coeli, "results from a cyclical explosion of debt. The possibility to borrow money at a low cost, without limits, has generated a fictitious increase of the value of assets. In 2008, it took just a tiny needle to make this bubble explode, with the subsequent drop in the value of all assets, from real estate to fixed income assets, by as much as 30% to 50%".

Question. Does the scenario you have just described open up some opportunity?
Answer. Of course. As I explained recently, debt is the new equity and America is the new emerging market.

D. What do you mean, exactly?
R. Let me make an example to clarify this point. The General Motors headquarters building in Manhattan. In 2007, it was worth 1.3 billion dollars with loans accounting for 1.2 billion of its value. Now, the same building is worth 650 million. Banks are left with a debt they cannot get repaid and there is no equity around. As a result, we have zombie banks, pretty much as it happened in Japan.

D. Do you mean that banks are no longer doing their job?
R. Exactly. These days, credit institutions have stopped making money by borrowing it. Take Europe. They get funded at a zero interest rate by ECB; then, they invest in Government Securities with a 2% yield at zero risk and do not lend money anymore. As you said, they no longer do their job and as a consequence entrepreneurs cannot either.

D. I don't want to play the devil's advocate, but banks claim that they cannot certainly lend money to bad payers?
R. Obviously, it is a problem. In Italy, loans grow by 2%, but the default rate is 28%. There is a huge mass of people who do not pay back their debt. But I also think that the best time to lend money is when nobody else does.

D. And you, through Colony, are planning to lend money?
R. More or less, yes. In the United States we have just bought the First Republic Bank from the Bank of America. We also established Colony Financial, a company listed in the New York Stock Exchange. Its first deal was a 206 million dollar loan to William Lyon Home.

D. What about Europe?
R. We are ready to step in.

D. How?
R. In the next two years, the banking regulations in Europe will become tighter and tighter. It is almost sure that the monetary authorities will impose an increase a debt-to-equity ratio for banks, from 8% to 15%. By then, the only thing that banks can do to meet such requirement will be to dispose of their assets. Good assets, of course.

D. And there is when Colony steps in?
R. Exactly. This will be the business: buying good assets from banks. Moreover, the European Commission most likely will prohibit the inter-bank sale of such assets.

D. What type of asset are you interested in?
R. All those that will be for sale. Security houses, loans divisions, personal loans. And I am sure they will sell them because, just to make an example, if a bank owns a security house that makes a profit worth 100 million, it can be sold for 1 billion euro, ten times as much its worth. Then, the banks increases its equity to meet regulatory requirements but it can borrow up to 10 billion from ECB, always at a zero interest rate, and invest in Government securities with no risk at all.

D. A smart move?
R. Yes, it works fine for banks. A bit less for individuals and businesses.

D. Colony, then, wants to buy banking assets. Have you already identified some interesting ones across Europe or in Italy?
R. We are watching. We have 2.5 billion dollars to invest in Europe, with a special focus on France and Italy.

D. So you want buy banks' assets around Europe. Yet, your name, particularly in Italy, is linked with Real Estate. You expressed an interest in Santa Giulia by Risanamento, you seemed to be willing to buy Magiste real estate, and then along with Vittorio Casale you wanted to buy a share of Aedes. Did you lose interest in this type of business?
R. Not really. Colony is still interested in the Italian Real estate. But only at a real value of projects. Take Santa Giulia, an excellent project and an excellent developer, Luigi Zunino. These days the big fashion designers are in financial straits, so selling or renting spaces in Santa Giulia is difficult. Relative to 18 months ago, rental fees have halved. And the same should happen to the value of assets, it need to decrease at least as much.

D. If this happens, would you be interested?
R. Sure.

D. So you still believe in Italy as a country where to invest. Some time ago, there was this rumor that you wanted to sell your properties in Costa Smeralda..
R. Look, the Costa Smeralda is not a mere investment to me. It is a personal passion. True, I got proposals but they were immediately rejected. I only have a regret.

D. Which one?
R. The Italian hospitality industry should be number one in Europe but it is not.

D. Why?
R. Because most hotels are family-run, because in high season the Milan-Olbia flight is more expensive than the Milan-New York flight, because there is no integration with the infrastructure and Italian bureaucracy is a headache. In Sardinia, for example, they should facilitate those who want to reach the center of the island or visit Cagliari. And maybe visitors would spend ten days in the island rather than an average three day stay.
D. Speaking of Sardinia: you are one of the greatest global real estate investors, would you buy Villa La Certosa if Silvio Berlusconi decided to sell it?
R. I think it is one of the most beautiful properties in the world. Mr Berlusconi went beyond the imaginable. Like everything he does, he created a unique piece of jewellery, something truly sensational that goes beyond a mere description of his villa as just a beautiful property.

D. Fine, but would you buy it?
R: (laughing) It is beyond my means, I would just be happy to work there as a guardian.

D. An elegant way not to answer. Anyway, speaking of "unbelievable' properties, you bought Neverland from Michael Jackson. By the way, what will happen to it?
R. We bought Neverland when Michael was still alive, and the idea was to help him to perform in concerts again so that he could solve his financial problems. No decision has been made yet about Neverland. For now, it is one of the most beautiful ranches of America. (limited reproduction)

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