Gift cards are a common gift during the holiday season. Usually stores exchange at a 1:1 ratio. Counter-party risk requires the financial ability to the counter-party to perform the contract. Why anyone buys gift cards surprises me.

Exchanging one asset for a less safe and less liquid and not requiring a risk premium seems awfully stupid. Gift cards function like an unsecured non-interest bearing loan to the retailer (counter-party). At least charge for the counter-party risk. What a deal for the retailer!

Many of these retail institutions are in or near bankruptcy. As the credit contraction continues and economic activity continues grinding to a halt many more victims will be claimed and many retail corpses will litter the malls throughout the nation.

If a company knows they are near failing and still issue gift cards I question the integrity of their management and the applicability of fraudulent conveyance statutes. Anyway, here is a list of retailers, with some preliminary research but not completely verified information, which may prove unreliable counter-parties:

• Circuit City filed Chapter 11 November 10, 2008
• Ann Taylor 117 stores nationwide closing
• Lane Bryant, Fashion Bug, and Catherine's to close 150 stores nationwide
• Eddie Bauer to close stores 27 stores and more after January
• Cache will close some stores
• Talbots closing down specialty stores
• J. Jill closing stores
• Pacific Sunwear closing stores
• GAP closing 85 stores
• Footlocker closing 140 stores more to close after January
• Wickes Furniture closing down
• Levitz closing down remaining stores
• Bombay closing remaining stores
• Zales closing down 82 stores and 105 after January
• Whitehall closing some stores
• Piercing Pagoda closing some or all stores
• Disney closing 98 stores and will close more after January.
• Home Depot closing 15 stores
• Macys to close 9 stores after January
• Linens and Things closing some stores (Update: Linens-N-Things has filed bankruptcy)
• Movie Galley Closing some stores
• Pep Boys Closing 33 stores
• JC Penney closing a number of stores after January
• Ethan Allen closing down 12 stores.
• Wilson Leather closing down some stores
• Sharper Image closing down some stores
• K B Toys closing 356 stores (Updated: KB Toys filed for bankruptcy December 11, 2008)
• Loews to close down some stores
• Dillard's to close some stores

Additionally, keep in mind that any purchases made are also subject to counter-party risk should the product be defective, tortuous, have a warranty, etc.

During this deflationary credit contraction individuals should be decreasing the risk and increasing the liquidity of their assets. They should avoid counter-party risk with retailer gift cards, unsound banks and fiat currency. There are alternatives, like GoldMoney, to the current monetary system. Happy holidays. Please add any other risky counter-party retailers to the comments.

Additionally, big change is coming to America.

Product Review Sites:

There are some product review sites including About Cellular, Geek Cellular, Geek Purses, Watches Head, Jewels File, Hats Avenue.