Tuesday, May 24, 2005


Politicians need to stay out of coin liquidation

There is one important point in the Coingate affair that hasn't received enough consideration - primarly because credibility-challenged BWC officials are the ones who have been trying to raise it - is the matter of how much information to disclose about the coins and their appraised worth.

We think they have a valid point here, and it is one that the Three Stooges Investigations, Inc. could totally screw up in their zeal to score political points. From a financial point of view, the concern is the flip side of the argument that the coins were a lousy investment in the first place. As we have pointed out several times, one of the major problems with this type of investment is that the is not a robust, transparent market for rare coins.

In more concrete terms, despite the intrinsic value of the gold or silver they may be composed of, or a value that some buyer paid once in a past auction, the value of the coins is extremely hard to determine. As an investment entity, the coins are not very liquid - at least in the sense that one can easily trade them for something close to what they are worth.

People involved in similar kinds of investments understand that successful investments - where you make money or at least break even - depend on asymetric information. In other words, one side knows more than the other.

Like dealers in art, one side knows how the maximum a buyer is willing to pay for a particular piece, and the art seller knows how minimum the artist will accept. But neither will - or should - share that information with the other. Like the prisoner's dilemma, the first person to show his cards provides further incentive for the other to hide theirs.

The investigations should go on, but there is a good reason for some of the information about the value of the individual coins to be kept confidential.

The bottom line is that investigators should let the investment staff at BWC - who seemed to have attempted to sound the alarm about Noe and the coins - liquidate the coins in a professional, knowledgeable manner.


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