Tuesday, January 25, 2005

Death to Letters of Credit

Ever used letters of credit? Ever wonder why it took so long to get one only to finally receive it and have the misfortune of learing firsthand why it took so long? Ever gag on the cost? Ever have to rely on one and find it didn't really amount to much? Ever think there had to be a better way?

Well, there is. International trade is leading the way with trade credit insurance, and such policies are already quite common in Europe. The idea is spreading here in the US, so we may finally be able to start insuring or bonding around the last, few pockets that have used LCs (some of them in real estate and construction).

What does that do? An LC is basically self-insurance with a fully funded, blocked reserve fund. Those assets can now be released by purchasing insurance instead.


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