Re: Why emoney? Why not a web of debt?
Date: Sat, 21 Jan 1995 15:18:48 +1300 From: davidm@iconz.co.nz (David Murray)
The best way to underpin the value of ecash is for the issuer to (credibly) undertake to convert it into real money.
And since I would only make the promise to the few people that I am connected to in the debt-trust web, this is doable. I doubt I could convince all of you that I was good for $10, but I bet there are a few readers on this list that I *could* convince. They would be able to convince a few others that _they_ are worth $10, etc.
But this, I suggest, is thinking too small, as well as (or, as a consequence) compromising anonymity somewhat. Which is not to say a central ebank is necessary -- just that (legally enforceable, audited) IOUs from a corporation that I knew could pay (because it makes it's living from being able to pay) would be preferred by me, even if I (my computer) knew that Alice's IOU is backed by Bob's which is backed by ... Zane's, who I would trust with my life (since he saved me in a boating accident 7 years ago...). Of course, the two systems can/should coexist. In fact, they're probably the same thing at different granularities. An ordinary bank takes deposits (issues IOU's to depositors) and lends the money out (collects IOU's from debtors). [The flow of credit is just the flow of debt backwards -- like current and electrons :-)] People trust bank IOUs because of the portfolio of IOUs it has collected (a certain mandated number from the Government, a certain proportion backed by property etc), and, probably, because it has received more IOUs than it has issued (so that the IOUs from Donald Trump and Orange County don't bring the system down...). On this analysis, the web of debt-trust is just an ultimately distributed bank. Instead of the bank collecting the ten dollars everyone is good for (in return for IOUs) and then lending it back out to the system (in return for IOUs), everyone's individual IOU underpins the system. This seems to leave the portfolio problem to the distributedness and interlinkicity of the e-economy (everyone essentially holds the market portfolio), or up to the individual to balance. Personally, I would be unhappy to hold my e-wealth in such a way that it was ultimately underpinned by the IOUs of a group of people living in California...
This system might even dodge the laws governing banking in various jurisdictions ... though I doubt it. It quacks, waddles, and water runs off its back...
I don't think the banking laws are such a big problem. [Feel free to enlighten me.] The ordinary business of banking involves borrowing money from people in a special way (deposits) and lending to people, again in a characteristic way. But it is not simply borrowing and lending -- every business does that (borrows from banks, and, increasingly, in markets; lends (extends credit to) customers). Imagine a corporation that issued bearer bonds, and invested the proceeds in t-bills (or term deposits, or call accounts). Imagine that the bonds (IOUs) were issued at face value, carried no interest, and could be cashed in by the holder at any time. Imagine further that the bonds were repres- ented by bytes, and transferable anonymously. That is, the bonds are ecash, and the corporation is an ebank. But it is not a bank-bank. It is not borrowing money in a characteris- tically bankish way, and it is not lending the money in a characteris- tically bankish way. It doesn't raise the regulatory/consumer protection/ handholding or multiplier effect/credit expansion problems that (supposedly) underlie banking supervision regulations. In short, ladies and gentlemen, it is my submission that it is not, in fact, in the final analysis, when looked at from all angles in the correct way, at all, a duck. Cheers. D [Although this doesn't entirely answer your point. I don't think the distributed/web of debt-trust system would be a bank, either, although it might be a credit union. And you would have to pay tax on all those IOUs you collected ;-) ]
Many companies are already founded on "a web of debt". "Sallie Mae (Student Loans), Ginnie Mae (General Loans), and Freddie Mac (Real Estate Loans)," all come to mind at the moment. They're nicely formatted, processed and make even more money for investors as the interest rates change. So maybe the remailer IOU's, could be traded for the data haven IOU's, and so forth. I think someone does have a credit card IOU situation. The systems, and precedence for debt trading are there (and interest rates are going up again soon, indicated the Fed last week!). I just wonder who wants to play "collection agency"? Love Always, Carol Anne Registered<BETSI>BEllcore Trusted Software Integrity system programmer *********************************************************************** Carol Anne Braddock "Give me your Tired, your Poor, your old PC's..." The TS NET REVOKED PGP KEY NO.0C91594D carolb@spring.com carolann@mm.com ************************************************************************ COMING SOON TO AN INTERNET NEWSGROUP NEAR YOU...............CENSORED.COM
Many companies are already founded on "a web of debt". "Sallie Mae (Student Loans), Ginnie Mae (General Loans), and Freddie Mac (Real Estate Loans)," all come to mind at the moment. They're nicely formatted, processed and make even more money for investors as the interest rates change.
You are talking about trading mortgage-backed (and other debt-backed) securities, and what you say can be generalized to bonds and certain FX contracts as well. Certainly derivatives often use debt instruments in their formulation.
So maybe the remailer IOU's, could be traded for the data haven IOU's, and so forth. I think someone does have a credit card IOU situation. The systems, and precedence for debt trading are there (and interest rates are going up again soon, indicated the Fed last week!).
This could work, but you are talking about securities markets, which do this already. Selling securities over remailers would be sure to bring down the wrath of moneyed establishment types... :-)
I just wonder who wants to play "collection agency"?
This is the problem. Government always ends up playing this role, and so it reserves the right to decide what it is willing to enforce... classifying the rest as 'gambling' or some other unenforceable debt... Craig Hubley Business that runs on knowledge Craig Hubley & Associates needs software that runs on the Web craig@passport.ca 416-778-6136 416-778-1965 FAX
On Sun, 22 Jan 1995, Censored Girls Anonymous wrote:
Many companies are already founded on "a web of debt". "Sallie Mae (Student Loans), Ginnie Mae (General Loans), and Freddie Mac (Real Estate Loans)," all come to mind at the moment. They're nicely formatted, processed and make even more money for investors as the interest rates change.
I for one would not want to go in to more debt. I am in debt up to my neck due to a auto accident. I can not afford to go in to more debt. I am barely making it beacuse I owe on two loans, insurance, and money borrowed from relatives. This beacuse I thought I could afford X dollars a month more. I could if I wassnt out of work for as long as I was. When I have everything paid off, I belive I will not be borrowing anything else for a while. My question to you is, "Why borrow, if 1. you can afford to pay cash now, and 2. when you are going to have to pay more in the long run." Groove on Dude Michael Conlen
Date: Sun, 22 Jan 1995 09:46:26 -0600 (CST) From: Censored Girls Anonymous <carolb@barton.spring.com> Many companies are already founded on "a web of debt". "Sallie Mae (Student Loans), Ginnie Mae (General Loans), and Freddie Mac (Real Estate Loans)," all come to mind at the moment. They're nicely formatted, processed and make even more money for investors as the interest rates change. Student Loans (at least GSLs) and GNMA loans are backed by ``the full faith and credit'' of the US federal government. As far as an investor is concerned, loan default looks the same as if the loanee paid their debt off early. The `web of debt' suggestion posted here doesn't seem to follow the same model unless you count virtually every form of financial transaction -- including buying a cup of coffe with a dollar bill -- as fitting the model. As a side note, GNMA (Ginnie Mae) is not for `general loans', but rather VA and FHA primary residence mortgages with various restrictions. GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) all exist to provide secondary markets for various kinds of real estate debt. -- Rick Busdiecker <rfb@lehman.com> Please do not send electronic junk mail! Lehman Brothers Inc. 3 World Financial Center "The more laws and order are made prominent, the New York, NY 10285-1100 more thieves and robbers there will be." --Lao Tzu
Sallie Mae's commercial paper is NOT backed by the full faith and credit of the US government. They carry a specific disclaimer to that effect. It is true that many personal student loans (GSLs) from banks are guaranteed by the government. The system was recently reformed to remove the riskless subsidy to Sallie Mae, which is 100% privately owned, and very profitable. Similarly Fannie Mae and all other priavetly held GSE's are only backed by an "implicit" federal guarantee. Although the only time one of these got into trouble the feds did bail it out. See my forthcoming article "Reinventing Government Corporations" in the Illinois Law Review. Due out in about three months. OBCrypto: How big a risk premium would YOU want to lend to an anonymous borrower? In practice, for the forseeable future any such lending will almost certainly be intermediated through a very small number (near zero) of specialists ready, willing and able to measure and minimize the risks. Or there will be ferocious requirements for collateral. A.Michael Froomkin | +1 (305) 284-4285; +1 (305) 284-6506 (fax) U.Miami Law School | MFROOMKI@UMIAMI.IR.MIAMI.EDU PO Box 248087 | Coral Gables, FL 33146 USA | It's warmish here. On Mon, 23 Jan 1995, Rick Busdiecker wrote: [...]
Student Loans (at least GSLs) and GNMA loans are backed by ``the full faith and credit'' of the US federal government. As far as an investor is concerned, loan default looks the same as if the loanee paid their debt off early. The `web of debt' suggestion posted here doesn't seem to follow the same model unless you count virtually every form of financial transaction -- including buying a cup of coffe with a dollar bill -- as fitting the model.
As a side note, GNMA (Ginnie Mae) is not for `general loans', but rather VA and FHA primary residence mortgages with various restrictions. GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) all exist to provide secondary markets for various kinds of real estate debt. [...]
Date: Mon, 23 Jan 1995 12:05:22 -0500 (EST) From: Michael Froomkin <MFROOMKI@umiami.ir.miami.edu> Sallie Mae's commercial paper is NOT backed by the full faith and credit of the US government. They carry a specific disclaimer to that effect. It is true that many personal student loans (GSLs) from banks are guaranteed by the government. The system was recently reformed to remove the riskless subsidy to Sallie Mae, which is 100% privately owned, and very profitable. Similarly Fannie Mae and all other priavetly held GSE's are only backed by an "implicit" federal guarantee. Although the only time one of these got into trouble the feds did bail it out. I inferred (perhaps erroneously) a tone of correction in your message. For the record, GSLs and GNMA loans were the only loans which I explicitly claimed were backed by the full faith and credit of the US government. Thank you for your clarification wrt Sallie Mae. On Mon, 23 Jan 1995, Rick Busdiecker wrote: [...] > Student Loans (at least GSLs) and GNMA loans are backed by ``the full > faith and credit'' of the US federal government. As far as an > investor is concerned, loan default looks the same as if the loanee > paid their debt off early. The `web of debt' suggestion posted here > doesn't seem to follow the same model unless you count virtually every > form of financial transaction -- including buying a cup of coffe with > a dollar bill -- as fitting the model. > > As a side note, GNMA (Ginnie Mae) is not for `general loans', but > rather VA and FHA primary residence mortgages with various > restrictions. GNMA, FNMA (Fannie Mae), and FHLMC (Freddie Mac) all > exist to provide secondary markets for various kinds of real estate > debt. [...]
participants (6)
-
Censored Girls Anonymous -
craig＠passport.ca -
davidm＠iconz.co.nz -
Michael Conlen -
Michael Froomkin -
Rick Busdiecker