From: hughes@ah.com (Eric Hughes)
Date: Wed, 18 May 94 12:10:44 PDT
To: cypherpunks@toad.com
Subject: Makeing MagicMoney worth something.
In-Reply-To: <9405181227.AA02210@snark.imsi.com>
Message-ID: <9405181913.AA06690@ah.com>
MIME-Version: 1.0
Content-Type: text/plain


   Eric Hughes says:
   > If the value transferred is liquid, and the payment is made upon
   > demand, then, in fact, you are a bank, regardless of what else you
   > might call yourself.

   Well, there is ONE subtlety -- entities like mutual funds and
   securities broker/dealers are not considered banks qua banks under
   American law 

On the other hand, Fidelity, for example, the largest of the mutual
fund providers, does not offer demand deposits, because you can't get
back your money "upon demand".  They don't have to give it back to you
immediately, so it's not "upon demand".  Check the agreement or the
"checks" you get for your fund account.

It seems conceivable to operate a business that took non-demand liquid
deposits, but which promptly serviced most demands for withdrawal
because of the competitive environment.  A "banc" of this form would
not survive if the liquid deposits were, practically speaking, liquid.
("Banc" is an avoidance of the regulation which puts companies with
the word "bank" in them under banking regulation.  It's amazing at the
number of companies with names like "Bancshares" or "Banc Holding".)

Since no such institution exists now, it would be currently outside
the regulatory framework, but one should not expect it to remain that
way.  Pragmatically speaking, one's best strategy would be to get
successful rapidly and then hire lobbyists.

Credit card and charge card companies could do this themselves right
now, were they to pay interest on positive balances.  The contract
between card company and customer would have to specify that the
positive balance was not available "upon demand", per above.
Otherwise most of the relationships could be the same.

As an aside, issues of commercial paper, including promissory notes
and hypothetically digital "bancnotes", whose term is nine months or
less are specifically exempted from SEC regulation.  There really seems
to be a gap in the regulatory environment.

Legal hacking is a lot of fun.  Prerequisites are a humility to learn
the structure of legal argument and access to legal materials.  The
study guides for law students are generally excellent introductions to
the subject.  Access to a law library is also useful for looking up
statute and decisions, but not essential, although reading at least a
few decisions is necessary for ensuring an understanding of the social
process involved in the creation of law.

And if what you want to accomplish with your computer hacking
requires, for implementation, something outside the computer hardware
and networks, legal hacking is almost a necessity.

Eric