

Italian bank's almost risk-free cash-for-cheese loan - selvan
http://edition.cnn.com/2013/08/15/business/parmesan-cheese-bank-mpe/

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ars
Reminds me of this joke:

A wealthy man walks into a bank New York City and asks for the loan officer.
He says he's going to Europe on business for two weeks and needs to borrow
$5000. The bank officer says the bank will need some kind of security for the
loan, so the man hands over the keys to a new Rolls Royce, which costs quarter
of a million dollars.

“The car is parked on the street in front of the bank,” says the man, “and I
have all the necessary papers.”

The bank officer agrees to accept the car as collateral for the loan. After
the man leaves, the loan officer, the bank's president and all their
colleagues enjoy a good laugh at the man for using a $250,000 Rolls Royce as
collateral against a $5,000 loan.

One of the employees drives the Rolls into the bank's underground garage and
parks it there. Two weeks later, the wealthy man man returns, repays the $5000
and the interest, which comes to $15.41.

The loan officer says, "Sir, I must tell you, we’re all a little puzzled.
While you were away, we checked you out and discovered that you’re a
multimillionaire. Why would you bother to borrow $5,000?"

The man replies, "Where else in New York City can I park my car for two weeks
for only $15.41?"

~~~
Garbage
Sorry, I fail to see the relation with the article. Can you please elaborate?

~~~
domoarevil
It was a light hearted piece of humor where a bank accepts an object for
collateral. You know that, of course, but comments like that make you feel
special I suppose.

~~~
JadeNB
> You know that, of course, but comments like that make you feel special I
> suppose.

Is that tone really necessary, or constructive? The question seemed to me
perfectly civil; if it was snark for snark's sake, then it was a pretty
harmless instance of that practice. It may have been disingenuous, but
automatically to _assume_ so seems more harmful than just answering the
question (or even than ignoring it).

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awjr
Isn't this just a specialised pawn shop? The more interesting thing is that
the 'value' of the cheese goes up over two years so there is an incentive to
purchase back the cheese, although I suspect the 'bank' sells the cheese on
behalf of the farmer for a fee and writes off the loan and gives the farmer
any profits.

I'm guessing a similar approach could be used for some hams but not sure if
there are that many food products where there is relatively high value in very
small amounts of space.

~~~
talideon
You need to read up on futures contracts. That's essentially what's going on
here, but the bank is providing a secure location for the product to mature,
and given the nature of the product, that's a sensible step for all involved.

~~~
hessenwolf
It has the contango element of a future with an underlying that has higher
storage costs than the value inflation rate, but, unlike a future, the asset
already changes hand, hence it resembles more a collateralised loan.

~~~
talideon
Contango is the key element of a futures contract, at least in my opinion. The
only real difference between this and, say, a grain future is that the nature
of the product allows the farmer to deliver on the immature product than with
many futures, and thus the bank has to take less of a risk while giving the
same benefits to the farmer of a regular future. There's less fear that
something disastrous will happen before the cheese matures because the bank
can control that to a great extent, unlike a bad summer, which could ruin a
grain harvest, rendering a grain future worthless.

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icebraining
The US has something similar:

 _There was something called the Commodity Credit Corporation, which was a
wholly owned government organization; still exists; sometimes called the CCC,
which is a New Deal-sounding acronym, and it was. And that corporation, run by
USDA, bought corn. Just went out and acquired corn, through a complicated loan
process. They would loan money to a farmer at harvest time, or actually well
before harvest, at planting time, based on a price guarantee at harvest. If
the farmer decided not to sell or had a price below that loan rate, the farmer
had the right to turn that corn over to the government. Which they did. And
the government owned warehouses but they also contracted with private people
who had warehouses. They did this--in the case of milk, the government didn 't
buy raw milk from the farm. They promised to buy cheese and butter and dry
milk powder, so that we had, outside of Kansas City, caves full of government-
owned cheese at one point. As well as piles and piles of dry milk powder._

[http://www.econtalk.org/archives/2015/02/daniel_sumner_o.htm...](http://www.econtalk.org/archives/2015/02/daniel_sumner_o.html)

~~~
stefanobernardi
That's not the same.

What you're mentioning are basically random subsidies to farmers not based on
true market demand.

Never ends well.

~~~
pjc50
No, it's a free put option to farmers, a form of insurance.

~~~
Retric
Insurance is still a subsidy.

Arguably post hurricane disaster recovery programs are just subsidies to live
and build in unsafe areas.

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nraynaud
Everybody needs credit to start a business, to do an act of development or to
get out of hardship, but it feels like some people have been using this bank
forever. Can't they extract a margin, accumulate the money, and run the
business out of their margin instead of constant borrowing?

~~~
bryanlarsen
Where I grew up (Saskatchewan), a small farm is worth about $2 million in
land, buildings and equipment. (For example, a new combine harvester is worth
~$750,000, a decent used one is a quarter million).

So you borrow $2 million in a capital loan to buy the farm from your Dad, and
another half million as an operating loan for your first year's expenses. You
then spend 40 years paying off these loans. Once you've got them paid off, you
sell the farm to your son/daughter and retire on the sale proceeds.

Also, the margin for agricultural products is quite low once you average out
yield fluctuations. They are commodities, so by definition the price is equal
to the cost of the highest cost producers. So the only margin you have is how
much you can keep expenses lower than other producers around the world.

~~~
tonyarkles
I'm always amazed to see other Sask folks here!

There's also the year-to-year smaller operating loans. Things like $90,000
worth of chemicals, etc. I know that some folks even go so far as to put those
expenses on a MasterCard, in order to collect the airmiles.

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Tarang
Cheese is very interesting because it's a food!

There are also 'Gold loans' in India where you can give up your jewellery for
a loan. What's interesting is that there are specialised banks that do this
rather than an ordinary bank taking it up as collateral.

I guess other items that could work this way more interestingly than gold are
whisky & wines.

[1] [http://www.manappuram.com/goldloan/](http://www.manappuram.com/goldloan/)

~~~
joenathan
We call that a pawn shop here in the states :-)

~~~
Tarang
Pawn shops aren't exclusive to the states.

I guess there's more of a distinction since the types of collateral the other
institutions take are more specialized.

The other distinction is i'm guessing these specialized institutions are going
to use your credit rating against you when you don't pay up.

I don't think they sell hocked these items on their desks either.

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pacofvf
But let's say that the bank buys conterfeit cheese, and start mixing it with
the original cheese (since that kind of cheese has designation of origin) and
then sell the surplus? Nobody would suspect since the bank can say that the
cheese it sells it's just defaulted loans?

~~~
nols
The wheels are traceable and inspected.

~~~
pacofvf
> Mozzarella arrests made after counterfeit cheese found in Italy
> [http://www.latimes.com/food/dailydish/la-dd-mozzarella-
> arres...](http://www.latimes.com/food/dailydish/la-dd-mozzarella-
> arrests-20140513-story.html)

still it appears that counterfeiting DOP products is a profitable business.

~~~
riffraff
well, so is counterfeiting money, but banks usually don't try to give you fake
notes.

------
nivertech
PoCh - Proof-of-Cheese ?

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fiatjaf
In Brazil, anything like this would be forbidden by the law.

~~~
Semiapies
Really? Why?

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danmaz74
After all, Parmesan has a very liquid market, so, why not :)

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smoyer
That's a pretty good deal but ...

A recent college graduate walks into a roomful of people with a PowerPoint
slide deck and prototype software he spent the last three months on. It's
using the most hyped technologies available and his presentation is fully
buzzword compliant.

He walks out of the room with a cool "one meeeellion dollars" with the promise
of more to come. Ten months later he writes a sorrowful admission that there
was no way to make money even though the idea was cool - and cuts his users
off from something they'd become attached to.

He also walks away debt-free, but didn't lose his cheese.

BONUS ALTERNATE ENDING:

His start-up was accelerated by all the media furor over the new
cryptocurrencies and troves of wishful Bitcoin investors deposit their hard-
mined treasures. Those new technologies seemed so sweet until a hacker found a
vulnerability and stole everything the company _AND_ its customers owned.

BONUS ALTERNATE ENDING:

His start-up was accelerated by all the media furor over the new
cryptocurrencies and troves of wishful Bitcoin investors deposit their hard-
mined treasures. Those new technologies seemed so last week but a twentyish
guy shouldn't be burdened with the rigors of running a company - and look at
all that money! (Transfers it to his own account and says they were hacked).

MORAL OF THE STORY:

Build a business that has a clear path to a profit (or better yet, can be
built with profits).

