Thursday, June 18, 2009

"Does this dress make me look fat?"

Wisdom from a good friend, older and wiser than I…

1. If you are asked: “Does this dress make me look fat?” and the questioner is your significant other, the appropriate answer is always “No!”. Honesty is neither virtuous (nor necessarily safe).

2. If that same person has a piece of parsley stuck in her teeth, on the other hand, you’ve just got to point it out.

I am a friend of The Receivables Exchange. I am a Buyer on TRE, so I am committed to it, and in my last several posts I’ve expressed very positive opinions on several major aspects of TRE structure, concept and operations.

But in my first post (scroll down or select the May 28 post from the sidebar) I did write:

“TRE is new and it is far from perfect. It will inevitably be required to make adjustments as experience teaches its operators and its users some valuable (and some potentially expensive) lessons. All beginnings are hard.”

So, in the next few posts I’m going to be discussing some aspects of TRE operations that I think are analogous to parsley in the teeth. You’re no less a friend for pointing it out; arguably you’re a better one; but it's less comfortable than delivering a compliment.

The issues to be discussed all bear on the assessment and pricing of risk.

More to follow.


  1. Chuck, thanks for taking the lead in establishing this blog.

    You put the $64,000 question right up front.... will the returns offered to investors be commensurate with the risk? It is axiomatic that TRE thinks so....afterall, this assertion is at the heart of every business proposition.

    It will take a while to get enough transactions done to draw even a tenative conclusion, IMO.

  2. Oldschool, thanks for your comment!

    I think the management of TRE probably believe that a fair market, allowed to freely operate, will ultimately discover proper pricing.

    I think that's right with the following caveat: "proper pricing" is not observed in a snapshot; it's observed over a meaningful time period.

    This is a new platform, which is both interesting and exciting. It will take some time to determine the appropriate risk-reward proposition.

    And, importantly, there will not be only one such proposition. I think there will be several tiers of risk and price operating at the same time defined by the characteristics of the sellers and debtors. So Buyers will ultimately be able to choose which tier they feel comfortable in, differentiated by perceived risk and desired return.