Home » Opinion » Book review
In defense of vilified pawn brokers
By Ni Tao |
December 26, 2009, Saturday
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Print Edition
Print Edition
PAST reading experience has taught me a useful lesson when encountering books bearing titles that end with "onomics."
Not that they are all bad, or that I am dismissive of economics. But since Steven Levitt and Stephen Dubner's landmark "Freakonomics" spawned a genre of travesties, I take extra precautions against ill-advised purchases at bookstores.
Too often these books, with extravagant blurbs on flashy covers, are anything but what their quirky titles suggest: serious economics. In fact, quite a few are potboilers sold on the back of marketing gimmicks.
Not the one I'm reviewing now -- or at least it's just more candid.
In his 92-page pamphlet "Pawnonomics," veteran pawnbroker Steve Krupnick attempts to set the record straight about the much-maligned pawnbroking industry despite the conventional wisdom stacked against him.
For many of us in China, it seems silly to ask: Does anyone still have to pawn things to get access to credit?
What use, if any, is there for pawnshops now that we have an intricate network of banks and other sophisticated financial institutions that don't lord it over customers as pawnbrokers once did?
Pawnbroking, whose origins date back to Mesopotamia over 5,000 years ago, has long been considered a vile occupation, taken up by people who were barred from normal trades.In times of need, poor people without financial recourse had to pawn their meager belongings with these loan sharks, who often charged appallingly high interest on the money they lent. If debtors failed to repay the loans on time, the collateral would be sold.
Over time, pawnbroking matured but its business model remained largely the same.
As Krupnick notes, "Surprisingly little has changed in the industry over the past several centuries."
One thing has also withstood the test of time: people's prejudice against pawnbrokers. In popular narratives, they are usually portrayed as leeches intent on sucking the blood from indebted individuals.
For example, an iconic image from a Chinese costume piece of people being forced to pawn their wives and daughters for quick cash is etched in my memory as evidence of pawnbrokers' abject wickedness.
However, popular contempt for pawnbrokers also stems from their being denigrated by bigger, mainstream money lenders with cynical motives for expelling rivals from the credit market, according to Krupnick.
For all the infamy associated with pawnbrokers' "merciless" exploitation through usury, the author points out that these lenders actually played an indispensable role in the genesis of modern financial industry -- and more importantly, in sustaining impoverished people who would not qualify for other credit. In most cases, pawnbrokers are the "working man's only resource" or "lenders of last resort."
The characterization of pawnbrokers as scheming swindlers coveting the collateral placed with them is as misleading as it is unseemly, argues Krupnick.
"Contrary to popular belief, a pawnbroker does not want to steal your stuff," he says, citing reason why pawnbrokers actually hope customers will redeem their items rather than lose them.
Like all financial businesses, pawnshops profit by charging interest and fees. But the nature of the loans they make usually exposes them to a higher risk of loss.
Collateral mostly declines in value over time, predisposing lenders to believe they may not recover their funds. Besides, it costs lenders dearly to pay for the secure storage of pawned merchandise.
A big chunk of pawnshops' premises is allocated to storage, display and sales of collateral. A vast waste, some would say, since it could have been put to more profitable uses.
Although pawnshops charge high interests in the hope of indemnifying themselves against some risk, their risk-aversion measures pale in comparison with those adopted by banks and credit card companies.
But compared with endless paperwork and abstruse creditworthiness checks that banks demand when lending, pawnshops' procedures are simpler and less time-consuming. That's the main reason why this "depraved" business is still alive and well today.
Anyone desperate for quick cash doesn't want his banker to know about the shortfall, so he or she may prefer a few-questions-asked transaction with a pawnshop.
As the global financial crisis makes loose credit from banks history, more people will likely borrow from pawnbrokers. Nonetheless, pawnbrokers' service is no longer restricted to supplying credit only. They help depose of factories' excess inventory and fund small entrepreneurial projects.
Some even became meccas for bargain hunters after this year's Spring Festival, Guangzhou-based New Weekly magazine said early this year.
Not that they are all bad, or that I am dismissive of economics. But since Steven Levitt and Stephen Dubner's landmark "Freakonomics" spawned a genre of travesties, I take extra precautions against ill-advised purchases at bookstores.
Too often these books, with extravagant blurbs on flashy covers, are anything but what their quirky titles suggest: serious economics. In fact, quite a few are potboilers sold on the back of marketing gimmicks.
Not the one I'm reviewing now -- or at least it's just more candid.
In his 92-page pamphlet "Pawnonomics," veteran pawnbroker Steve Krupnick attempts to set the record straight about the much-maligned pawnbroking industry despite the conventional wisdom stacked against him.
For many of us in China, it seems silly to ask: Does anyone still have to pawn things to get access to credit?
What use, if any, is there for pawnshops now that we have an intricate network of banks and other sophisticated financial institutions that don't lord it over customers as pawnbrokers once did?
Pawnbroking, whose origins date back to Mesopotamia over 5,000 years ago, has long been considered a vile occupation, taken up by people who were barred from normal trades.In times of need, poor people without financial recourse had to pawn their meager belongings with these loan sharks, who often charged appallingly high interest on the money they lent. If debtors failed to repay the loans on time, the collateral would be sold.
Over time, pawnbroking matured but its business model remained largely the same.
As Krupnick notes, "Surprisingly little has changed in the industry over the past several centuries."
One thing has also withstood the test of time: people's prejudice against pawnbrokers. In popular narratives, they are usually portrayed as leeches intent on sucking the blood from indebted individuals.
For example, an iconic image from a Chinese costume piece of people being forced to pawn their wives and daughters for quick cash is etched in my memory as evidence of pawnbrokers' abject wickedness.
However, popular contempt for pawnbrokers also stems from their being denigrated by bigger, mainstream money lenders with cynical motives for expelling rivals from the credit market, according to Krupnick.
For all the infamy associated with pawnbrokers' "merciless" exploitation through usury, the author points out that these lenders actually played an indispensable role in the genesis of modern financial industry -- and more importantly, in sustaining impoverished people who would not qualify for other credit. In most cases, pawnbrokers are the "working man's only resource" or "lenders of last resort."
The characterization of pawnbrokers as scheming swindlers coveting the collateral placed with them is as misleading as it is unseemly, argues Krupnick.
"Contrary to popular belief, a pawnbroker does not want to steal your stuff," he says, citing reason why pawnbrokers actually hope customers will redeem their items rather than lose them.
Like all financial businesses, pawnshops profit by charging interest and fees. But the nature of the loans they make usually exposes them to a higher risk of loss.
Collateral mostly declines in value over time, predisposing lenders to believe they may not recover their funds. Besides, it costs lenders dearly to pay for the secure storage of pawned merchandise.
A big chunk of pawnshops' premises is allocated to storage, display and sales of collateral. A vast waste, some would say, since it could have been put to more profitable uses.
Although pawnshops charge high interests in the hope of indemnifying themselves against some risk, their risk-aversion measures pale in comparison with those adopted by banks and credit card companies.
But compared with endless paperwork and abstruse creditworthiness checks that banks demand when lending, pawnshops' procedures are simpler and less time-consuming. That's the main reason why this "depraved" business is still alive and well today.
Anyone desperate for quick cash doesn't want his banker to know about the shortfall, so he or she may prefer a few-questions-asked transaction with a pawnshop.
As the global financial crisis makes loose credit from banks history, more people will likely borrow from pawnbrokers. Nonetheless, pawnbrokers' service is no longer restricted to supplying credit only. They help depose of factories' excess inventory and fund small entrepreneurial projects.
Some even became meccas for bargain hunters after this year's Spring Festival, Guangzhou-based New Weekly magazine said early this year.
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