Believe those who are seeking the truth. Doubt those who find it. Andre Gide

Friday, March 16, 2012

Turning wine into liquidity

The bible credits Jesus with having once turned water into wine. Nowadays, we get to witness the "miracle" of seeing wine turned  into liquidity: Wine Cache Rescues Those Short of Cash.

Some pretty interesting tidbits of information here. For example,
"You'd be amazed by how many wealth individuals have terrible credit ratings. And besides, if you go to a bank, it can take weeks or months to get a loan. When we make a loan, it's usually the same day,'' said Joran Tabach-Bank, head of Beverly Loan Co. 
It seems hard to believe that the wealthy individuals he refers to apparently do not have good relationships with their local bank (he includes bankers in this set!). But there you have it.
"Most people have a vision of pawn shops as sad sites. But that's not the case here," Taback-Bank said. "I have a lot of people who come in who have a business opportunity and they need an infusion of cash for business purposes," he said. 
Like the banker who can't get the cash loan he needs from his own bank?!

Of course, the business of transforming "illiquid" assets into "liquid" securities is as old as...well, it's as old as banking; see here. And now that pawnshops are muscling into the shadow banking sector, I wonder how long it will be before they too will be subject to regulatory oversight? After all, standard monetary theory predicts that assets that suddenly emerge as good collateral objects will be valued above their "fundamental" value; i.e., they will trade a a liquidity premium (which resembles a price bubble).

And, lo and behold! Do I detect a wine price bubble emerging out there?! (source)

I wonder if the Fed might consider expanding the set of securities acceptable at the discount window to, no...probably won't happen.

Anyway, just having a little fun here before cutting out for the weekend.


  1. great post

    what we expect out of you

    insight, irony, and humor

  2. Looks like the bubble recently went busto:

    1. Wow...roughly a 30% decline in just a few months! Thanks for the update! (Now we know why the large haircuts.)

  3. Price bubbles in everything = hyperinflation.

  4. Anyone for investment grade sardines?

    1. You laugh, but...

      "It is as well to keep in mind an anecdote from Simon Loftus ... which he attributes to the late Peter Sichel: `Abe bought a shipment of sardines that had already been traded many times and each time profitably. Unlike previous buyers, Abe decided to try a can of his purchase. The sardines were terrible. He telephoned Joe from whom he'd bought them only to be told 'But Abe, those sardines are for trading, not eating!'"


  5. David

    Next week, can you comment on this paper

  6. David, You say “And now that pawnshops are muscling into the shadow banking sector, I wonder how long it will be before they too will be subject to regulatory oversight?”

    My answer is: “an awful long time if past experience is any guide”.

    It strikes me that the regulators have been thoroughly dilatory in regulating the shadow bank industry. And I can’t see the big difficulty. In other words why don’t we have a law saying that any institution with a turnover of more than $Xmillion a year that acts like a bank shall be deemed to be a bank, and will have to obey bank regulations?

    I’m sure the problem is more complicated than I’ve portrayed in the above paragraph. But I don’t believe the problem is insuperable.