Chingo De Dinero

I recently read an article entitled “The Pawnshop Economy”, which highlighted the “credit crisis” and explained how people are being forced to pawn their gold, just to make ends meet (cry me a river).

Pawn shops are great!!!!!!!!!!!!! I did a little history search on them, and apparently they started in Italy, during the Roman’s rule. They ran into some regulation issues, with the Church, but the market ended up winning, like always, when the need is high enough. Apparently, kings and queens would use the pawnshop to get loans against their jewelry, to fund wars. How crazy, kings and queens used to use it, and not it is associated with only the lowest social class.

So are we a pawnshop economy??? Somewhat yes…people will always need short-term loans in a hurry. Bank like to think they are the only lender for all situations, but this is not true. Pawnshops are amazingly efficient providing these short-term loans. The only industry that might be more efficient are the payday lenders, which we know how much regulators hate them, and how much people love to use them.

In the US, we have a very strong banking system, and sophisticated economy in general. I would argue that the level of pawnshop activity is more suited for a less sophisticated economy. In a less sophisticated economy, it is harder to prove your income, and allow the bank to perform adequate risk analysis, thus making them less efficient to serve the market. In these situations, pawn shops are very good at giving people what they want now, in a method that allows long-term existence.

This is no different than what they guy won the Nobel Prize for a few years ago, micro-lending. Maybe payday loans are more like micro-lending, but still this is close. This I would say is better, because it has a higher incentive for the borrower to perform and pay off the loan.

Before I start getting too far from the topic, let me conclude. Pawnshops do serve a purpose in the US economy, although much less than it can in less sophisticated economies. They offer a product that people like, and choose to purchase, what a great idea!!!!

By the way, I own some stock in FCFS, a great pawnshop owner.