From: "Perry E. Metzger" <perry@piermont.com>
Date: Wed, 23 Aug 95 09:13:21 PDT
To: rah@shipwright.com (Robert Hettinga)
Subject: Re: e$: The Book-Entry/Certificate Distinction
In-Reply-To: <v02120d01ac60f9d955ba@[199.0.65.105]>
Message-ID: <199508231613.MAA10539@frankenstein.piermont.com>
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Robert Hettinga writes:
> So, let's look at this for a second. First, a check is a kind of
> certificate pointing to a book entry in a bank somewhere, payable upon
> demand.

Actually, it isn't. Its an instruction to the bank to pay to someone's
order. Note that the existance of a check doesn't guarantee that there
are funds in the bank that can pay. The check isn't a certificate of
the existance of funds -- only of the existance of an order by the
account holder.

> A note or commercial paper is a promise to pay money plus interest,
> cash included, at a certain time in the future. So's a bond, but the
> duration is longer. It's easy to see how they're all certificates, though
> they can be held at a clearinghouse and thus be be book-entries.

Well, the point that I'm trying to make is that a bond certificate is,
provided you don't think its a forgery, an actual bond. It isn't,
however, the actual underlying money, because the issuer can
default. If someone is trying to buy a bond the bond certificate in
some sense allows you to clear the transfer, but it clears the
transfer of the bond, not the payment of the obligation. I'm probably
being a bit obtuse here, but I suspect my point is made...

Perry