September 15, 2004

Paypal fines arbitrageurs

Paypal, the low-value credit card merchant processor masquerading as a digital currency, moved to bring its merchant base further into line with a new policy: fines for those who sell naughty stuff [1] [2]. Which, of course, is defined as the stuff that American regulators are vulnerable too, reflecting the pressure from competitive institutions duly forwarded to the upstart.

This time, it includes a new addition: cross-border pharmaceuticals that bust the US-FDA franchise. Paypal is the new bellweather of creative destruction, although strangely, no complaints by the RIAA as yet.

[1] PayPal to impose fines for breaking bans
[2] PayPal to Fine Gambling, Porn Sites

Posted by iang at September 15, 2004 06:13 PM | TrackBack

Paypal has sold its soul to the devil - the real world - and has cut its future off with its limitations.

The freemarket model of un-negotiatated governmental commerce and reduced taxation will win eventually due to lack of friction. It always comes in spurts after wars, during times of affluence. The Dot-Com Bubble was just such a time, illogical, affluent, and progressive in regards to freemarket growth. Paypal is not really part of this concept but rather the Western Union with some html, a banking lackey and by proxy a defacto governmental stooge. Touching the earth regulations when and if the the regulatory body that does not approve of the activity conducted on the ether world they track until the group touches their world. The yearning to seperate to start a new world has always had to confront those that would tie them to the old world for monetary reasons mostly.

Paypal is a freedom movement arrested and turned out to prowl upon those that also seek freedom from an older more corrupt, heavily regulated, arbitary system. So at some point in time the cyber money float will be held in cyber banks and never need to come back to the real world. The problem is when, where, and how the physical presence of the real people are accomodated. So a physical location that allows these real people a place to live may become a breakout success for allowing freedom to its citizens beyond the approved requirements of the UN and others. Space will certainly become like this fast; no taxes ensure no social dead weight and strict observance of contractual agreements with private retribution for violations. The nation state that can allow these freedoms now can also benefit. Streamlined regulations in regards to assisting if requested upon contractual arrangements, no taxes, no wellfare, and other draconian measure like a no army policy would allow such a nation a cheap flexible enviroment for freemarket commerce on the part of its citizens rather than the negotiated arrangments of its elected officials and their appointed ministers.

Posted by: Jim at September 15, 2004 08:50 PM

"Paypal is a freedom movement arrested and turned out to prowl upon those that also seek freedom from an older more corrupt, heavily regulated, arbitary system"

Reality -- Jim.

Jim --- reality.

I thought you might need the introduction.

Try reading The Social Life of Information. It probably will not be too complicated for you, and it will begin to fill in all those layers of context to which you are currently oblivious.

Paypal is a service layer that provided interfaces to the credit card clearance system. It was never a freedom movement, and in fact when Visa threatened to stop taking Paypal charges it was immediately clear that Paypal was useless on its own. In the creation of Paypal points it is indeed trying to create a fiat currency. But right now PayPal depends on the FDIC-backed banks that are the major participants and founders of the credit card clearing systems. Generally freedom movements do not arise from the federal guarantee of deposits.

Creation of a currency depends on either having something of value, or just having something that is valueless that everyone believes has value, since belief is value in economics. The boom was more like the second, and maybe the reading you are looking for there is Extraordinary Popular Delusions and the Madness of Crowds by Charles Mackay, there is a 1990 edition, pp. 1-91 is on various monetary madness forms which put the boom in perspective.

Posted by: redwagon at September 20, 2004 07:51 PM

Well I'm probably too stupid to read The Social Life of Information, since this refined document probably polarizes the reader into not commenting.

It is my experience that credit card processing does not rely upon the FDIC directly but rather relies on the arbitary ability to hold vendors funds, over charge consumers, and create fees for both the vendors and consumers that feed their greedy monopoly. Credit is the means by which the fiat currency has been spread and expanded.

Since the notion of something for nothing enhances the value to consumers and allows vendors to sell more credit, that is all that matters. If for example I could create something that people would buy (as stupid as I am) and offered credit for the purchase I would sell more. If I also took deposits from people and floated this credit offering off my books via securitization I have no risk but have transfered the risk to CDO holders. So the value is only enhanced by the extension of credit nothing more. So I can create a currency that offers an interest rate and use it to transfer value with credit offers to the consumer remove the credit risk via securitization.

Simply put as stupid people are likely to do my currency competes with other currencies by credit, FDIC be dammed. Arbitrage credit versus the demand for yield.

Posted by: Jim Nesfield at September 20, 2004 10:35 PM