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Tuesday, March 9, 2010

"The C.O.D. Society?"

In G.O.D. ("Gold on Delivery") We Trust

What happens in a tough economy where more people are paying their bills late (and some, not at all)?

Creditors start insisting on being paid upfront.

I don't know about other fields, but for Realtors, "C.O.D." seems to be the order of the day -- and has been for about a year now.

So, instead of letting Realtors charge their marketing expenses, then deducting the accumulated balance against future commission checks, the brokers are invoicing Realtors monthly.

For the full balance owed.

"Pay As You Go"


That next commission check may be a ways off.

And certainly, some Realtors have gotten so deep in the hole on their expense accounts that they simply quit the business, leaving their Broker with a big -- and noncollectable -- balance.

The local Board of Realtors now seems to have adopted a C.O.D. policy regarding member dues as well.

Instead of billing Realtors through their broker, starting April 1 the Minneapolis Area Association of Realtors ("MAAR") will now invoice Realtors directly.

While that's certainly a more transparent way of doing things, you'd guess it also shines a brighter --and faster -- spotlight on delinquent balances. (Coming next: mandatory automatic debits??)

C.O.D. Writ Large

Of course, the ultimate COD policy is at the level of international trade.

As various sovereign debts start to reach nosebleed levels, creditors naturally look for ways to hedge their risk.

Unfortunately, the various currency hedges -- synthetic and otherwise -- favored by traders and speculators alike ultimately suffer from the same defect: they pay off in fiat (paper) currency.

Structured finance expert Janet Tavakoli assesses the problem thusly:

Credit derivatives now settle in euros -- after all, if the U.S. defaults, who will want payment in devalued U.S. dollars? However, with the euro now weakening relative to the dollar, market participants are calling for contracts that require payment in gold.

This is so ripe for speculative manipulation that you might as well cover the U.S. map with a bull’s-eye.

--Janet Tavakoli, "Washington Must Ban U.S. Credit Derivatives as Traders Demand Gold"; The Huffington Post (3/8/2010)

Need the foregoing translated?

The ultimate pay-as-you-go customer potentially is . . . the U.S. government.

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