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... and you've just created an inductive proof for how the US financial system collapsed. Don't get me wrong: I think step 3 has a good chance of working. BUT
by idm 17y ago
... and you've just created an inductive proof for how the US financial system collapsed.
Don't get me wrong: I think step 3 has a good chance of working. BUT if you, like your customers, assume that a commitment is equivalent to the actual asset (i.e. the laptop) then you are vulnerable to defaulting on YOUR commitment if and when you cannot deliver the asset.
How might that happen? Imagine you commit to purchasing laptops through a broker, exactly like yourself, who has no laptops to sell. This happens all the time (e.g. "just in time" ordering) and it results in delays, angry customers, and in the case of the US financial system, systemic fraud, corruption and failure.
Naked short selling is surprisingly similar to your strategy:
http://en.wikipedia.org/wiki/Naked_short_selling http://en.wikipedia.org/wiki/Naked_short_selling
- deleted 17y ago[deleted]
- ankeshk 17y agoWhile in theory you are correct, there are a few points to ponder upon: Laptops are not like stocks or other exchange commodities. As in, their prices won't fluctuate like crazy (unless of course you manage to get pre-order commitments to like 10,000 laptops.) At the scale we are talking about, we have a pretty good idea of what price discounts we'll get. And more importantly - who will be able to deliver them well. Its important to keep scale in mind.
- idm 17y agoAgreed - delivery is the important aspect, when it comes to just-in-time order fulfillment. If they don't deliver, then you don't deliver either. On your last point, I agree again: scale is critical. You describe something that might work once, given that there are no supply chain screw-ups or customer service problems. At the scale you describe, you can probably absorb any costs associated with these problems, but you will eat into your time and/or profit to do so. My whole point is that the risk doesn't disappear just because you haven't invested any capital; you've just shifted the risk.
- fnid 17y agoThis happens all the time in the material product world. You go to customers, get their orders, then have the products made. Watch some Shark Tank on Hulu. Anyone with a product and tons of inventory is scorned by the panel. They all say, "Get the sales, then make the product." Why are you going to invest thousands of dollars stocking a product you aren't sure you can sell?
- asimjalis 17y agoInteresting parallel. However, I think this would be like the financial system if you got the commitments, and then created a market for these commitments, where they were freely sold as liquid assets.