credibility and banking

"If the operators of an escrow service are anonymous, then either their
 accessible assets had better be enough that you can recover losses if
 they walk with your goods, or their opportunity cost of defecting on
 their clients had better be high enough (in terms of lost revenue,
 lost opportunity on outstanding customer goodwill, name recognition,
 channels, etc.) that they are sufficiently unlikely to that you will
 take the risk."

It seems to me that there are many parallels between this state of affairs
and that which prevailed in the American West of the 1800s, with respect
to banking .... there were no agencies insuring deposits, and only the rep-
-utation of the bank's president - usually a leader of the community - was
guarantee upon the funds. Bank robberies were not uncommon, depositors were
few, runs on the bank, I speculate, may not have been unknown in those cir-
-cumstances where the community of bank depositors lost confidence in the
bank or its officers.

Another parallel which occurs to me is that of the computerized trading that
occurred when programs controlled trading in, um, was it October of 1987 that
the stock market shuddered ? 1989 ? ... it suggests the inevitability of
software shuttling funds around at cyberspace speeds to take advantage of
ebbs and flows in the economic tides of the human race, around the world ...

It would be interesting to further study the origins of banking, as I expect
such a study would provide many such parallels by which the case for digi-
-tized banking could be made stronger ...

-- richard

Our mechanisms for estimating credibility of a guarantor partly assume
that life can be made difficult for the guarantor if they renege.
Those intuitions are often completely wrong if the guarantor is
anonymous.  That's the main point of what I was saying.

	 few, runs on the bank, I speculate, may not have been unknown in those cir-
	 -cumstances where the community of bank depositors lost confidence in the
	 bank or its officers.

My understanding of the history of banking is that there are ZERO
documented cases of runs on banks before the gov't started mucking
with the banking industry.  They started that mucking based on some
economists projection that such a run could happen, so the gov't had
to protect the pipul from it.

	 It would be interesting to further study the origins of banking, as I expect
	 such a study would provide many such parallels by which the case for digi-
	 -tized banking could be made stronger ...

It also has strong arguments for free banking, which is consequence of
cryptographic electronic banking.

dean

>From: tribble@xanadu.com (E. Dean Tribble)

>My understanding of the history of banking is that there are ZERO
>documented cases of runs on banks before the gov't started mucking
>with the banking industry.  They started that mucking based on some
>economists projection that such a run could happen, so the gov't had
>to protect the pipul from it.

Not strictly speaking the case -- there were instances of bank runs
under free banking systems, but restriction clauses usually eliminated
these problems immediately. Restriction clauses permitted banks to
briefly suspend payments in gold, with a heavy interest penalty paid
by the bank. Such clauses allowed banks to stop runs, but they could
not be lightly used. In any case, runs were quite infrequent under
free banking systems.

In any case, I believe that digital banknote systems, when they
arrive, will almost certainly involve explicit issuance banks rather
than any sort of anonymous banks. Likely such banks will first appear
offshore and will, at least at first, be nothing more than banks that
accept cryptographically signed electronic mail in the stead of checks
and bank drafts.

Perry