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:
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.
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