1996-12-11 - Re: Redlining

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From: dlv@bwalk.dm.com (Dr.Dimitri Vulis KOTM)
To: cypherpunks@toad.com
Message Hash: 65b6fd55cc6d529e7100ef2bd41691838c0abc3f8e3d775c47886ba4ede9a8b5
Message ID: <207qyD118w165w@bwalk.dm.com>
Reply To: <199612102104.NAA32212@mailmasher.com>
UTC Datetime: 1996-12-11 04:31:04 UTC
Raw Date: Tue, 10 Dec 1996 20:31:04 -0800 (PST)

Raw message

From: dlv@bwalk.dm.com (Dr.Dimitri Vulis KOTM)
Date: Tue, 10 Dec 1996 20:31:04 -0800 (PST)
To: cypherpunks@toad.com
Subject: Re: Redlining
In-Reply-To: <199612102104.NAA32212@mailmasher.com>
Message-ID: <207qyD118w165w@bwalk.dm.com>
MIME-Version: 1.0
Content-Type: text/plain

nobody@huge.cajones.com (Huge Cajones Remailer) writes:
> At 9:04 AM 12/10/1996, Black Unicorn wrote:
> >On Tue, 10 Dec 1996, Huge Cajones Remailer wrote:
> >> I believe that ten, or a hundred, or a thousand people should be able
> >> to pool their money and lend it to whomever they please for whatever
> >> reason they like.
> >>
> >> That, essentially, is what a bank is.  I do not believe the government
> >> should dictate which people you, or your bank, are allowed to lend to.
> >
> >Create a bank where the identity of the customers are unknown and you
> >solve the redlining problem.
> I can imagine a bank whose depositors are not known.  I can also
> imagine a bank which itself operates anonymously.
> How would people borrow money against real estate and remain
> anonymous?  It seems to me that the borrower cannot do so if the real
> estate will act as collateral.
> Also, how would an anonymous bank foreclose on a mortgage?

Actually, this is not as wild as it first sounds, even though the location
forms a major part of the price of real estate. (We seem to be talking about
mortgages for primary residences now. Actually, the bigger problem with
redlining is the banks' refusal to extend loans to business venture (such as
retail stores) in neighborhoods they consider too risky.)

Suppose the bank deals with a middleman (perhaps even a government agency -
something in the spirit of Sally Maie, Freddie Mac, and Fannie May) that
guarantees that the collateral is worth a certain amount and the bank can
set the interest rate based on the borrower's crddit history etc. If the
bank forecloses, they get the value of the collateral from the middleman. A
bank would charge lower rates because they wouldn't have to deal with the
potential foreclosures.

Alternatively, the information about the location can be held in a kind of
escrow while the mortage is being negotiated and disclosed to the bank
immediately after they agree on terms. The bank can pull out if they, e.g.,
disagree with the appraisal.

Anonymous transactions are surprisingly common in financial markets (I again
refer you to Solnik's book for some examples). I used to work with a very
curious kind of transaction called "principal bid". Let's suppose that you
own 10,000 shares of IBM and you want to sell them and buy 150,000 shares of
Novell with the proceeds. If you do it through a regular broker, it'll cost
you a great deal in both commission cost and market impact. For large
transactions ($20M+) asset managers use the following technique:

Compose a description of the package you're trying to buy/sell. You might
list things like the number of shares you're trying to buy and sell, the
average closing price from the day before, some indication of market
capitalization, liquidity, bid/ask spread, etc. Fax it over to your brokers
who *can't* determine from this information which stocks you're trying to
trade. (If they could, they would manupulate the market against you.) Based
on the description you supply, the brokers send in bids in the form "closing
price plus n cents", where n is usually between 5 and 20 cents. This is done
in the afternoon and the closing price for that day is not known to either
party. The lowest bidder buys/sells the package at the close minus/plus
the n cents and finds out afterwards what he got (a cat in the bag indeed).
The other bidders don't even know what got traded.


Dr.Dimitri Vulis KOTM
Brighton Beach Boardwalk BBS, Forest Hills, N.Y.: +1-718-261-2013, 14.4Kbps