Cheese Banking-?

In the period when recession is hitting, one bank in Italy takes Cheese as collateral. In Italy Cheese business is a Big business but these days even cheese makers are feeling a pinch from the economic downturn, so what they really need is support from banks. And in one part of the country that exactly for what they have got known as “Cheese Banking”.

Due to recession today price of Parmesan is approximately seven euro per kilogram but a year ago it was at least 10 Euros and there about a ring of cheese weighing 80 pound valued worth 300 Euros. So I guess you are really curios to know how this Cheese Banking does really work?....In MILAN - All that is golden in bank Credito Emiliano's temperature-controlled vault is not precious metal, but something equally prized in Italy: aging Parmesan cheese. A cheese maker would turn a percentage of Permesan into banks warehouse and in return Cheese maker would get a certificate that would be given to the bank to secure a loan. Banks vault nearly has about 410000cheese wheels, with fully capacity deposits would be worth 130 million EUROS. So precious is the cheese that each 80-pound wheel, worth about 300 euros, is branded with a serial number so it can be traced if it is stolen. The bank offers loans for as long as 24 months, equal to the time it takes the parmesan to age, at the euro interbank offered rate, plus 0.75% to 2%. The bank gives producers as much as 80% of the value of the product, based on current market prices. The Parmesan loan business contributes just 1 percent to the bank's annual revenue — but is critical to its image in the region, where agriculture is a key economic driver, said William Bizzarri, director of the Credito Emiliano subsidiary that deals in Parmesan deposits.

The regional bank in Italy accepts parmesan as collateral for loans, helping it to keep financing cheese makers in northern Italy amid the worst recession since World War II.I know its very fascinating to imagine that you want a loan for 900 Euros. So you walk into the bank and the manager says: "OK, how many wheels of Parmesan cheese do you have for collateral?" You answer, "I have three wheels." (Each wheel is worth 300 Euros.) "Fine, we'll take your three wheels as collateral for your loan," he says and draws up the contract. Meanwhile, you take your three wheels to the warehouse for inspection. All cheese must be aged for at least one year. Cheese that does not meet the strict standards at the warehouse is downgraded and the price reduced. After the inspection is completed, the bank manager gives you a check for 900 Euros. Not only does the bank take cheese as loan collateral, the interest rates on those loans are low because the bank actually houses the collateral for the loan, i.e. the cheese

The program allows Parmesan producers to pump cash into their business by using their product as collateral while it is otherwise sitting on a shelf for the long aging process, its history goes back when Parmesan cheese were used for financial operations since the Middle Ages, producers say it is ever more important because it ensures that credit keeps flowing during otherwise tight times. This is both due to its value, since each compact wheel holds the equivalent of 550 liters of milk, and the fact that aging takes years, making financing necessary until the product can be sold.

Parmesan wheels lend themselves well to use as collateral because they are eminently traceable. Each form is stamped with the month and location where it was produced, and after 12 months of aging, it earns the Parmesan imprint on it and those mark help identifies stolen cheese, in given case.

I am sure you have heard E- Banking, Online Banking but never heard this CHEESE BANKING…so remain fascinated till next issue....say CHEESE :D

From:

A. M . Dixit


Picture Source:
a)http://farm1.static.flickr.com/39/123179592_4744bacedb.jpg
Write up references:
a)http://itn.co.uk
b)http://www.bloggingstocks.com/2009/02/25

अ बुक Review of FREAKONOMICS

“This sensation will apparently redefine the way you observe the modern world.”- A.M.Dixit

It’s been couple of years when I started buying novels and books for my own, and one of the most interesting books that I ever read was FREAKONOMICS by Steven Levitt & Stephen J. Dubner. Through influential storytelling and ironic insight, Levitt and co-author Stephen J. Dubner shows that economics is, at root, the study of incentives -- how people get what they want, or need, especially when other people want or need the same thing. One becomes spell bound when you have to go deeply thorough questions like “Which is more dangerous, a gun or a swimming pool? What do schoolteachers and sumo wrestlers have in common? Why do drug dealers still live with their moms?” ….Right! these may not sound like typical questions for an economist to ask. But S. D. Levitt and S.J Dubner isn’t a typical economist. They are much like scholars who studies the stuff and riddles of everyday life, from cheating and crime to sports and child rearing and whose conclusions regularly turn the conventional wisdom on its head.

In FREAKONOMICS, they set out to explore the hidden side of... well, almost everything. From the inner workings of a crack gang, the truth about real-estate agents, the myths of campaign finance to the telltale marks of a cheating schoolteacher. This book usually begins with a mountain of data and a simple, unasked question leaving readers to solution of newly created unknown. As Leveitt sees it, economics is a science with excellent tools for gaining answers but with a serious shortage of interesting questions. His particular gift is the ability to ask such questions which when scratched from root will leave you fascinated.

The fieriest admission in the book refers to a distant cause of the dramatic crime rate drop of the 1990s, which was unlikely predicted by criminologist; political scientist similarly learned forecasters to be horrible future, as did Presient Clinton during that time. Mr Levitt and Dubner in explaining the Hidden side of everything states – “It wasn’t; gun control or a strong economy or new policy strategies that finally decreased the American crime wave. Policies and Security were among other factors, the reality that the pool of potential criminals had dramatically shrunk was with legalization of abortion in the early 1970s. As far as crime is concerned, it turns out that not all children are born equal. Not even close, Decades of studies have shown that child born into an adverse family environment is far more likely than other children to become a criminal. And the millions of women most likely to have an abortion were often models of adversity. They were the very women whose children, if born, would have been much more likely than average to become criminals. But because of legalization of abortion these children weren’t born. This powerful cause would have a drastic, distant effect: years later, just as these unborn children would have entered their criminal primes, the rate of crime began to plummet.”

There are numerous cases and questions this book drills into and every time you get close to the unabsorbed facts you become captivated. We define morality as how we would like the world to work, then economics represents how it actually does work, combining economics, morality and unobserved facts this book FREAKONOMICS has enough riddles and controversial stories to last a thousand cocktail parties. But more then anything else this sensation will apparently redefine the way you observe the modern world.

CHEERS


A.M. Dixit