Author: Marc Roark


Understanding intermediaries in Payment Systems — Constructs of Liquidity and Certainty

In my previous post on intermediaries, I talked about introducing liquidity to students and rules enhancing liquidity and certainty. In talking about payment systems we often talk about the policies of creating liquidity and certainty, and then talk about other things, like confidence and efficiency.  One of the troubling things that I think the scholarship surrounding payments systems has not really discussed is the ways in which liquidity and certainty are related to by-products of transactional goals.  I think at times, we talk about the goals of liquidity and certainty, and policies of efficiency, confidence building and (one I’ll add) longevity, without really parsing out how these things come about. What it produces is a bramble bush where we recognize lots of contributing roots, but little discussion of how those roots work together.

One reason that these things create problems is that they clearly live in symbiotic relationships to each other, but it is unclear which is the feeder and which is the fed.   Does liquidity and certainty create systems that are efficient, that create confidence, and that innure longevity into the payments markets.  A model that looks like this perhaps, where these policy constructs are created by systems that innure towards liquid systems with substaintial certainty.


Or perhaps liquidity and certainty are created through efficient, trust-worthy, systems that have the capacity for substantial longevity.  Something like this perhaps.  Some might argue compellingly that this doesn’t really matter — whether liquidity and certainty are byproducts or instigators for further policy constructs matters little except in ivory towers.

I argue that it does matter, at least from the standpoint of understanding how these individual constructs affect consumer and merchant choices to engage in the payments market.  I will offer one example and then save the rest for my last post on this particular project.

Consider the role that credit cards have played in the impacting consumer choices.  In the last several years, as noted by a study conducted by the Philadelphia Federal Reserve [the Visa Payment Panel Study], not only has consumer choice in medium of payment moved towards more plastic mediums, but the type of plastic medium has changed, with merchants moving away from private label cards and towards general use cards with enhanced benefits when the general use card is used with that merchant (i.e., your Shell MasterCard in which you receive .20 rebate on gasoline purchases at Shell).  Why consumers move towards general use cards versus private label cards implicates the policies and constructs described above.  The more the card may be used with multiple merchants (liquidity & certainty) the more the card’s effectiveness is built up by the market-life of the payment and its outgrowths (including accounts which can be leveraged by the bank supporting the card (longevity); consumer convenience in reducing the number of bills they must pay at the end of the month lead to more use (efficiency); and the greater impact of the payment’s reach, the better terms inure themselves to the consumer creating greater confidence in the payment. Moreover, the more the card is used by the consumer, the greater the efficiency and confidence in the medium.

The result is that we may have different policy constructs that reveal themselves as more powerful factors depending on the manner of payment.   So perhaps with credit cards and other networked payment intermediaries, we are in a model in which longevity becomes the instigator producing the policy aims we seek — a model that looks like this, where longevity becomes the catalyst for greater efficiency and confidence which renders the effect of the payment being medium being accessible in more places (approaching liquidity) and the certainty that it will be accepted when using the card [though it does not happen often, many of us can recall when a restaurant did not accept one of our preferred payment partners].

How consumers and merchants sort through these questions will be considered next.

P.S. Traveling down Route 66 creates certain problems of access to technology.   So, I’ll end my post today with a plug for the hotel we stayed at in Holbrook Arizona — The WigWam. The picture to the right says it all, though I will add we met two charming families from London who had read about the Wigwam before coming to America for “holiday.”  One of the Englishman even let me pose with his cowboy hat in front of our Tee-pee Style hotel room. [English people are so quaint]. Who knew Holbrook was that diverse!


On the Road — Kansas City to Dodge City

My family and I are on the road back from our sojourn in Missouri to California — twenty-four hours with a six year old and three year old to be clear.  (For those that want to honor me as a saint, I drove with the kids by myself to Missouri — in three days).  To be fair, the previous two years, my wife had the kids with her).

This time, we are taking it slow — driving back in a week to see the site close to the Santa Fe Trail and Route 66.   Today, we drove a portion of the Santa Fe Trail from Kansas City to Dodge City.  Along the way we passed a memorial to Knute Rockne off the Kansas Turnpike, drove through the Kansas Flint Hills, saw the largest hand-dug well in Greensburg, Kansas (interesting town making a revival after a tornado destroyed ninety percent of the town in 2007 — the town has adopted the “Green” in its name rebuilding with substantial investment in alternative energy sources); stopped at midway USA in Kinsley Kansas (the exact middle distance between San Francisco and New York); drove around Fort Dodge and found the Custer house (although I am not sure why it was named for him since he never lived there); and finally arrived in Dodge City, where we saw a gun fight and variety show on Front Street.

Tomorrow — its Dodge City to Santa Fe — looking for Wagon Ruts.  Till then, win one for George Gipp….


Understanding Intermediaries in Payment Systems — Introducing Liquidity to Law Students

So as I noted a few days ago, one of my annual rites of passage is returning to the University of Missouri each summer to teach Modern Payment Systems.  (Its always interesting to hear different people recall what the course was called when they were in law school — commercial paper, negotiable instruments, Commercial Payments, but I digress). This year, I decided to do something I have not ventured to do — teach the class through an article that I am writing on the role of payment intermediaries in consumer transactions.  (As an aside, I believe the material came across far more dynamic).

Each year, I introduce the course by starting with the central policies of liquidity and certainty as pillars of all payments systems.  Students that have had an economics background know certainty as the legal cornerstone to efficiency — but fewer students understand what liquidity is beyond the pale of converting something to cash; they don’t for example understand that liquidity can mean enabling something with cash-like qualities.  To explain liquidity (one of the central promises of negotiability) I turned the class into a mini-bazaar.  As a condition of staying in the class they must barter something to me in exchange for a cup full of M&M’s.  By exchanging goods, I tell them, we have established economic worth and created new wealth — I know my cup of M&M’s is worth a highlighter, bookmark, Lexis Flash Drive, or Starbucks card as the case may be. But, our economy has a problem — there is no certainty in the transaction.   A cup of M&M’s might be worth a highlighter to one, a flash drive or Starbucks Card to the next person.   The economy is far too personal to be effective as a predictive wealth creation tool.

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Cardboard Races on the Fourth — AKA Torts on the Water

Happy July Fouth Everyone!  This morning we participated in the Lake Winnebago Cardboard Box Boat races and had two entries.  One of our entries — the Lake Winnebago Dragon Boat won most creative!  The former torts teacher in me hoped there were more boats sinking than there were, though the viking ship and pirate ship met untimely ends (see the photo stream)  Here is an image of the award winning Dragon Boat.

I have added a link to a photostream detailing the different boats (with a few that sunk). What interesting things are going on in your community?

Happy Fourth of July everyone!


Summertime in the South

So one of the things we all love about being a law professor is the flexibility to do what we do in lots of different places.  Each summer, for the last three years, I have split my time between Columbia Missouri and California teaching payment systems for Missou — a nice way to subsidize our family’s vacations back to the Midwest and the South.

This summer in Columbia was the summer of the seven year cicada cycle.  Cicadas are small locust like bugs that every seven years emerge from the earth and mate and then die.  The sing a delightful sound, that frankly can be deafening when they all decide to sing together (which is about two to three weeks per cycle). You may have heard that one Columbia Missouri vendor Sparky’s Ice Cream made a concoction of cicada ice cream before being advised by the Missouri Health Department to cease.  (I went to Sparky’s several weeks ago to try some Cicada ice cream, but they already were told to stop serving the concoction.  Thus, I had boring coffee ice cream instead).

So despite the fact that I did not get to enjoy ice cream with bug parts mixed in, I am happy to say that my summer in the south has been enjoyable. And there is still a month to go. This weekend we are sailing homemade cardboard box boats in a race on July Fourth — my father-in-law constructed two twelve foot cardboard canoes, insulated by gallons of paint.  We are planning a trip to Santa Fe in mid-July, and then back to California.

Summer is definitely my favorite time of year. I am going to blog later about how law students renewed my faith in baseball — reminding me once again of why summer is magical.   For now, I’ll just say, thank you for having me at Concurring Opinions.   I’m looking forward to sharing my thoughts on various things, perhaps post some pictures of our travels (including the cardboard boats), and talk about what I am writing and working on.



Book Review: Divergent Opinions: Why Community Matters — A Review of Sunstein’s Going to Extremes

Going to Extremes: How Like Minds Unite and Divide, by Cass Sunstein. Oxford University Press: New York 2009. Pp. 171. $21.95

Cass Sunstein argues in his new book Going to Extremes: How Like Minds Unite and Divide that extremism is a phenomenon that is enhanced when people of like minds get together to talk. When we think of people that lie at the extremes of society, our minds are often drawn to reclusive characters. People like John the Baptist living in the wilderness “wearing clothes made of camel hair, eating locusts and wild honey;” (Matt. 3:3-4) or people like Raskolnikov from Fydor Doystoyveski’s Crime and Punishment – a reclusive character who develops a radical and warped sense of morality in response to his perception of society’s values. In reality, people that live on the extremes are rarely alone. They are surrounded by a network of like thinkers who confirm the attitudes, beliefs and interpretations of sensory data that those persons embrace as normal. Extremes are about information. That is, where you get your information from; whether you believe that information to be reliable, and how willing you are to accept information outside of your preferred source.

Going to Extremes is about how, when and why extremes develop in communities. The theme of the book is that “[w]hen people find themselves in groups of like-minded types they are especially likely to move to extremes” (p. 2). Sunstein’s work fits into the genre of human behavioral psychology proposed by James Sidanius and others that views extremists’ cognitive complexity as more complex than moderates. See James Sidanius, Functioning Sociopolitical Ideology Revisted, 6 POLITICAL PSYCHOLOGY 637, 639 (1985). This is in contrast to extremism theory, which largely assumes that political extremists display less-sophisticated cognitive behavior than moderates. About the form of extremism we call terrorism, Sunstein writes at one point,

it is tempting to think that terrorism is a product of extreme poverty, lack of education, or a kind of mental illness. It turns out that all of these thoughts are quite wrong. Most of the time, [terrorists] come from middle-income families. Nor have terrorists lacked education. There is no evidence that they suffer from mental illness…. Alan Krueger argues that terrorism is a form of political protest, and those who lack civil rights and civil liberties not having other means of engaging in protest resort to terrorism. To Krueger’s point, we might add that when civil liberties do not exist citizens have only one prominent source of information – the state – and that source cannot be trusted. (p. 115)

Terrorism then becomes a reaction against information that the extreme positions assume can’t be right. Thus, in Sunstein’s work, the why and how of extremisms (like terrorism) can be associated with how individuals interact in communities – the trust they place in the information received, the confidence they derive from like-minded members, and the authority or submission they respond to as a member of the community.

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