Wednesday, April 5, 2017

Let's attempt a term debt using the sandbox

In this hand waved proof the information allocation will show that neither lender nor borrower benefit by  indexing to a time variable.

Let borrower and lender be secure elements at end points in the sandbox.  The one makes a loan to the other, in some currency, and expect time synchronous payments in return.  But both elements run account at the same S&L, with the known bit error process.   Under equal access to the trade book, neither has an advantage, except where the one has hidden information to bet the other.  The borrower, on approaching payment time, hedges by balancing savings to loans, build up savings for the monthly, the lender does the reverse.

I am not sure what remains of demand for term loans after the conversion. I don; get into the contract layer. This much I add.  A time based loan should be backed with a contract for time based delivery of goods. It is like a metronome one might use when starting a production, a training exercise. It cannot last, it becomes hedged by insiders, ultimately. You go back to time independent, managed congestion.

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