Wednesday, May 17, 2017

Larry White on WalMart banking

Money and Banking:
However, when financial regulation is being discussed, there is a large elephant that isn’t in the room, but really should be: Walmart. Starting in the mid-1990s, Walmart made two separate efforts to enter banking in the United States, but was repelled both times. After its second effort was rebuffed in 2007, Walmart gave up this effort in the United States (but has since entered banking in Canada and in Mexico).
Larry is one of my guys, the article worth reading.  In the article he has estimates of banked and unbanked customers by income.   Then he talks free entry, (and free exit by implication).  What is he getting at? We all have to participate in the pricing process, to the extent that we consume from supply chain.   I didn't come up with free entry and exit condition, Larry did, with Selgin working at the Cato center.  But we can see it true, absent the banked consumer, the inventory flow gets volatile because missing S&L liquidity events cause larger than necessary price variations.

What happens when WalMart is not allowed to run an S&L? You get riots and other 'flea market' activity.  Many of the purchases  otherwise robbed are easily gotten on small credit, especially with low transactions costs.  WalMart can trade the S&L business for the security costs of unbanked customers.

This is the point I come back to with defaults.  Government cannot default when an large segments of the population do not have access to the even money bet. Otherwise, you get flea market and liability falls back to government.

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