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Pawn 101: Pawn shops get more respect

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As an old newspaperman, it pains me to say it, but TeeVee is capable of performing feats — so far as public opinion goes– that print just cannot match. Case in point: Making pawn  shops respectable in the public eye.

We have mentioned a couple of times that Fender has a “Pawn Shop Special” line of instruments and amplifiers, but while this shows a certain degree of respect, it is not general. Rather, the theme seems to be that musicians, who unless they hit the big time lead a rather hand-to-mouth life, rely on finds of still-good but cheap equipment in the retail departments of pawn shops. Nice but not a full-throated endorsement of the place of pawn shops as bankers to those abandoned or ignored by the big financial institutions; or even of just the convenience of no-credit-check, no-hassle (as we say in our Maui pawn shop: NO HUMBUG) borrowing.

(For context, there are other businesses that are so chancy that in a sense new entrants rely on the lack of success of previous risk-takers. Restaurants have a very high closure rate, much higher even that the generally high failure rate for all small businesses. So there is always a lot of used equipment for sale: professional refrigerators, mixers, coolers etc. Since it’s commercial-grade, it tends to be rugged and if it hasn’t been abused,   reliable. But the depreciation rate is worse than for cars. We have seen a commercial mixer, in good shape, that goes new for $60,000 go at auction for about a grand. Some pawn shop operators do get involved in used restaurant equipment. Kamaaina Loan occasionally buys at foreclosure auctions, rather than direct from restaurateurs or as forfeitures on loans — most collateral we accept is hand-carried to the counter, not possible with most restaurant equipment — and resells to new hopefuls. But it seems unlikely that Hobart will be coming out with a “Pawn Shop Special” line of slicers. There’s no inherent reason that musicians should feel more attuned to shopping at pawn  shops than hot dog-stand owners, but they do.)

Which brings us to today’s special pawn shop news, a real breakthrough — as we see it — in the image of pawn, and due largely to the impact of reality pawn shows, especially top-rated “Pawn Stars.”

In fact, the Pawn Stars are the stars of the new TV commercial by Microsoft that uses Rick of  “Pawn Stars” to bash Google Chromebooks. The theme is that a used Chromebook is not worth anything to a pawnbroker because it’s “not a real laptop.” This digs at Chromebooks’ bargain-basement approach which means it can do work if you are on-line but not so much if you are not connected to the Web.

Well, being used as authority for dissing other brands is not quite in the league of being called the Cadillac or Tiffany of whatever, but it’s a big step up from being seen as the resort of down-and-outers and burglars.

The way we see it, pawn shops haven ‘t changed very much. Most Americans have  never been inside one. Maybe one in four have used pawn shops for one purpose or another. TeeVee has given the rest of them a look inside, and what they saw was far different from what they saw when Rod Steiger played
The Pawnbroker.”

All this could lead to some long thoughts about how mass opinion gets formed. No question the movie “The Pawnbroker” had as much to do as any other episode to form the public reputation of the pawn business, even if nine out of 10 Americans never saw it.

But the ones who did spread the meme of pawnbrokers as avaricious, hard and unscrupulous. Nine out of 10 Americans have never watched “Pawn Stars,” either, but the one-tenth have brought it up in conversations with friends, and print and on-line media have written about the phenomenon. So that a new ingredient in the froth of public perception has been added, and overall a positive one.

Thanks, Rick.

Luxury asset lending

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One thing Kamaaina Loan blog hasn’t covered much is how pawnbrokers do business with small businesses.  Usually, the actual transaction is with an individual, as with the vast majority of pawn loans, but “luxury asset lending” differs because it is a loan for much more money than a typical pawn loan, and it is taken out to tide an operating business over a financial hump — like making a payroll, which is much different from asking for a few hundred dollars to cover an emergency car repair.

Our comfortable Private Transaction Room

Our comfortable Private Transaction Room

This sort of loan has been a part of the pawnbroking business right along, but only with the increased attention paid to pawn (thanks to cable TV) has it acquired a name — personal asset lending, luxury asset lending or collateral-based lending.

None of the terms is especially well chosen, but that’s what the financial press has decided to go with.

Collateral-based lending, also called personal asset, luxury asset lending, is small but fast-growing, part of the shadow-lending sector that has emerged since traditional credit dissipated after the financial crisis.

The Wall Street Journal estimates it could soon grow to a multibillion-dollar segment, which sounds big but would be trivial compared to the big sources of short-term business money, like commercial paper.

Here’s a typical example of how it works: Let’s say a small general contractor has to make payroll but, for some reason, a progress payment on a project hasn’t come in on time. He needs several thousand or maybe a few tens of thousands of dollars, and he needs it fast.

Banks and other lenders cannot react that fast. Credit cards might work  but only if the borrower has a lot left on his credit lines.

Who can give a businessman $25,000 in cash in 15 minutes? A pawnbroker can. If the businessman has a gold Rolex, or something similar. A safe deposit box of gold coins will do. Even a stamp collection, although it would likely take more than 15 minutes to value that.

Now, let’s say our general contractor also does not want to be seen handing his Rolex across the pawn counter. People might talk. At Kamaaina Loan, we have him covered.

Call 242-5555, explain you want to do a “luxury asset loan” and we’ll open our Private Transaction Room, which is accessed via a private entrance well away from the pawn entrance. We’ll even send a limousine to bring you and your Rolex (diamond tennis bracelet, Krugerrands etc.) to us.

 

“Small business owners are not willing to extend themselves further into debt without more assurances of an economic recovery and stability,” says Paul Aitken, CEO of personal asset-based lender Borro Inc., in a press release, noting that small business borrowing has continued to decline. “The macroeconomic picture shows indications that the recovery should be on its way, but small business owners don’t share that same sentiment. “The consequence of accumulating too much debt has become more than people are willing to accept,” he adds. “Personal asset lending continues to be a favorable option as it avoids the potential pitfall of damaging credit scores.”

As with all pawn loans, we don’t care what your credit score is. Your Rolex is good enough for us.

 

 

Who is a pawnbroker?

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As this editorial from the Wheeling Intelligencer demonstrates, pawnshops and other dealers in secondhand goods sometimes have to surmount poorly conceived local regulations.

In most places, including Hawaii, there are separate legal codes for pawnbrokers (whose primary business is lending but who buy and sell used merchandise) and pure secondhand dealers, who do not make loans. In a few places, like Florida, there are more than two sets of regulations, as secondhand dealers are further subdivided.

Not in Moundsville, West Virginia, though.

Pierson took his concerns about the ordinance to council last month. He explained his store is not a pawn shop. He merely buys and resells merchandise. He does not provide loans with items brought into the store held as collateral. Most reasonable people would agree Pierson is not operating a pawn shop.

But city officials have said Pierson is required to fill out pawn cards for any valuable items he buys, then hold the merchandise for 10 days before selling it. Police Chief Tom Mitchell explained requiring documentation and a delay in sale can help his department track stolen goods.

This appears to be nothing more than 1) poorly drafted legislation in a hick town; and 2) casual perhaps biased enforcement.

One of the continuing beefs at our Maui pawn shop is that enforcement of secondhand dealer laws is spotty to non-existent. Kamaaina Loan is registered as both a pawn shop and a secondhand dealer.

Following the two sets of rules is not extra burdensome. The same sorts of recordkeeping are required for both kinds of deals, and the difference is the holding period.

For purchases, our business is required to hold merchandise for 15 days before reselling. Pawned items have to be held 60 days, and if not redeemed by the borrower by then, can be sold.

And since Kamaaina Loan, as a pawn shop, makes daily electronic reports to police, the authorities can monitor both kinds of transactions at the same time. Secondhand dealers are regulated in theory but in practice with swap meets, Internet classified lists and other avenues for disposing of used goods, secondhand dealing is hardly supervised at all.

 

Who do you trust?

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One cool thing about being in the pawn business is that we can (usually) make money on gold whether its price is up or down. That’s because we both buy and sell and depend on the commission for profit, not the fluctuation.

That is not the case with most individuals. Probably most buy gold as jewelry, so the variation in price doesn’t matter much to them anyway. But for those who buy gold as an investment, it certainly makes a difference when to hold ’em and when to fold ’em.

For example, right now the price of an ounce of gold is about $1,314. Goldman Sachs thinks the price will be down close to $1,000 by the end of next year; but there’s an alternative opinion. Bloomberg News describes the views of  Peter Schiff, a well-known gold bug. He thinks gold is going to $2,000, and soon.

So, take your pick, $1,000 or $2,000. The story quotes Ben Bernanke:

“Nobody really understands gold prices and I don’t pretend to really understand them either.”

Neither do we.

We will buy your gold or silver jewelry, coins, ingots, dust any time, for the daily New York spot, minus a small commission. Or we will sell you jewelry, coins or ingots (sorry, gold dust not usually in stock), for the New York spot plus a small commission.

We will beat any other written offer you can find on Maui, too.

A reliable form of Maui gold

A reliable form of Maui gold

 

Two colorful pawn shops

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These two pawn shops, one in Maine and one in Florida, make our little Maui pawn shop seem kind of — how to say? — drab?

Pawn shop in Maine

Pawn shop in Maine

 

The photo of the Florida shop does not show quite how colorful the shop is. Even the palm trees are painted green, yellow and blue.

 

Even if we wanted to paint our Wailuku pawn shop this way, we don’t have the wall space to do it.

Pawn shop in Florida

Pawn shop in Florida

We see this happen, too

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From  a summary of a new episode of “Hardcore Pawn,” set on a day when gold has taken a big drop (although the claim that it dropped 5% is bogus — that would be around $75 and gold doesn’t move that much in a day):

When a woman came into pawn her gold bracelet, she was told she could get $250. She had received $300 in the past for it and demanded the same. When she was told that the price of gold had dropped, she told the woman at the window that it was not her problem and wanted to see a manager. When Ashley came to confront her, she called her out to the parking lot, without Byron. Ashley handed her back her bracelet and told her to have a good day.

At our Maui pawn shop, we have a lot of customers who pawn the same item over and over. They know and we know what the loan value is, and writing up those loans goes really fast.

Maui is a tourist island, and plenty of workers in the visitor industry have busy and slow periods. They use pawn loans to smooth out their cash flow so they don’t get behind in  their bills.

Most of these regular customers are quite sophisticated about the value of their collateral. Unlike the lady in the “Hardcore Pawn” episode, they don’t get bent out of shape when they’re told they cannot get as much as usual.

On the other hand, sometimes when gold is rising, a Kamaaina Loan pawnbroker will be asked for, say, $100 and will check the New York gold price and say, “You know, you can get more for this now.”

Some take more, some say, “No, that’s all right. $100 is what I need.”

The really sophisticated ones recognize that some lendable items can lose a lot of their appeal overnight. This is true, for example, of video game systems. When the new Xbox or Playstation comes out, the old ones lose a lot of their value. Since the game system makers usually announce new versions well in advance, the value actually starts adjusting well before the new version is released.

What are they worth now?

What are they worth now?

Something similar happens with cellphones. They are very lendable, but every new version of the iPhone makes the old ones worth less. There have been so many versions of the iPod that it takes a maven to keep straight the market value of the various models and features.

Gold, silver and diamonds are less predictable. They aren’t coming out with a new version of gold.

Gold today is under $1,300 an ounce. It was over $1,300 a few days ago. No telling where it will be next week, particularly since the issue of the government shutdown is still unsettled as this is written.

 

They got his number, and his, too

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Kamaaina Loan blog has often pointed out how stupid a crook has to be to fence stuff at a pawn shop. Here’s an example

A stolen vase

A stolen vase

from Illinois that’s a little bit off the beaten path: Police busted two guys for stealing 100 bronze vases from cemeteries. That’s about $50,000 retail value of vases, though much less as scrap, which is what the crooks sold them for.

The buyer was a scrap yard, not a pawn shop, but in that jurisdiction both types of business are covered by similar reporting rules. (Same with Hawaii, although scrap metal dealers have their own ordinance.) In any event, the outcome was the same: a routine check by police turned up suspicious items, and from there it was a simple matter to get full identification of the sellers.

Harl said that it is not uncommon for scrap yards to turn away customers who are selling likely stolen goods. In terms of the vases, he said employees might not have been aware of what they were. Harl said it is illegal for a scrap yard to knowingly accept anything taken from a cemetery.

“A lot of these (thieves) will come up with a legitimate story before going to sell them,” Harl said. “This isn’t their first time around the block. If scrap dealers get suspicious of everybody, they won’t be in business for very long. They are in business to do business, and not necessarily to help us out.”

But, in doing their due diligence, and following with ordinance guideline, the scrap yards and pawn shops are helping out in a big way.

“The ordinance is stringent, and effective and something that allows us to keep close tabs on items being accepted by various dealers in the city,” Aurora City Spokesman Dan Ferrelli said.

Bronze memorial vases turn up in odd places sometimes. We saw an urn for ashes at a “Storage Wars”-type auction once. It was empty.

Somebody offering 100 ought to be enough to make any buyer curious, but the story makes it sound as if the thieves fed them into the stream of commerce a few at a time, spread over two counties.

Probably thought they were being clever, but you’d think if they were even a little bit smart, they’d have started having doubts after being asked the third or fourth time for their fingerprints.

Can you pawn wine?

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wine

Not at our Maui pawn shop, where gold, watches, surfboards and fine art are accepted. But Kamaaina Loan would need a license from the Maui County Department of Liquor Control to make a loan on wine.

But just because you cannot do it here does not mean it cannot be done. According to this report, a few pawn shops are in the business of lending on fine wines.

They have to be stored properly:

The market here was investment-grade wines with good provenance that have been stored at a secure climate-controlled facility. The wine acts as security for a loan equal to a percentage of its market value. Pay back the loan and get back the wine (which may not have physically moved from the wine warehouse when it is stored). Fail to pay the loan and the pawn shop owns the wine.

And, no, you cannot raise scratch on your carefully hoarded collection of Mad Dog 20-20. Anywhere.

When the late Dick Tuell was auctioning off abandoned property, he would occasionally spot a half bottle of whiskey. (Yes, people do put whiskey in storage.) He was always scrupulous in saying that the bids for the storage locker did not include the booze. That was thrown in free, to avoid violating the county’s licensing law.

 

Why did gold swoon?

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Don’t get your hopes up. By the end of this post, we will not be able to tell you. But watching gold take a $40 swan dive the morning the government shut down raises plenty of questions.

Here at Kamaaina Loan, gold transactions make up over half our business, so we are intensely interested in price movements. But we have no influence. We buy and sell based on each day’s spot price in New York.

Also, we make no predictions about which direction the price will go. All we know is that it will go up, or down, or (rarely) stay the same. Recently, gold has been steadily dropping. After briefly hitting a record$1,900, it is now selling in below $1,300.

Last week, Goldman Sachs and other big operators predicted that during 2014, the price would average in the $1,200s. This seems bizarre. The Federal Reserve is printing money at the rate of $85 billion  a month, which is supposed to make money worth less, compared to gold.

And you’d have thought that shutting down government would be bad for stocks and dollars and good for gold. Wrong.

The stock market held steady and gold made one of its biggest one-day moves all year — a move down.

Bloomberg News reported that big players were betting that the shutdown would not last long, thus shortcircuiting any flight to precious metals, which is a usual response in troubled times. Go figure. One analyst told Bloomberg:

“While the standoff is not a great thing, the effects seem to be limited, and we are not seeing investors rush to gold for its safe-haven quality,” Frank Lesh, a trader at FuturePath Trading in Chicago, said in a telephone interview. “Riskier assets like equities seem to be in favor.”

However, Bloomberg also found an analyst, Ron William, who thinks gold will hit $2,000 next year, which would be a record.

Whatever, we stand ready to buy, sell or lend on gold every day.

A reliable kind of gold

A reliable kind of gold

 

We admire a fake

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Yesterday found us around the desk admiring a phony Mexican 50-peso gold coin.

A customer had offered to sell it, along with a fistful of pre-1964 US silver coins, which were genuine and which we did buy.

Mexican 50-peso golds, real or fake, are not rare, and we do not stop to admire them. But this fake was a beauty. It looked right. It felt right. It weighed the right amount. If it had been real, it would have been worth well over $1,000.

It would have fooled most people, which, of course, what somebody had designed it to do. But it did not fool the go/no go gauge, which is almost the court of last resort when it comes to checking coins. (The last resort is cutting into the coin for acid testing; which if the coin has — or is supposed to have — collector value you do not want to do.)

The run-of-the-mill fake gold coin is made by forming a mold from a genuine coin, then pouring in molten metal while the mold spins rapidly. This spreads the metal to the farthest reaches of the mold,  but it also leaves a gradient that is obvious at a glance to a trained eye.

It will fool most of the people most of the time, which is good enough most of the time.

This fake, however, was struck on a die, the way genuine coins are made. It takes a pretty hefty die to make coins, so the spin mold method is easier for counterfeiters. This one had a perfect “boardwalk,” the flat area next to the milled edge, which tilts in a spun coin. Every detail was crisp as only a die-struck coin can be.

However, however the die was made, it was not exactly the right size. (Getting the weight exactly right is difficult, too, but not impossible.)

It is very common, when we are brought counterfeit coins, to have them come in along with genuine ones. It is unlikely that the customer made his high-class coin; or than anybody on Maui is striking such good fakes. We cannot tell, but when someone brings in a fake, it is usually most likely that they are victims, not con artists.

It is not a pleasant part of the pawnshop business to tell a customer that he has presented you a phony coin. The implication is either, “You are a crook” or “You are gullible.”

In  the first instance, you don’t want his return business; but in the second, you do (at least if he brings in better goods next time). But who can tell?

The moral of this story is: Know who you are buying from. The fakes are getting better and better.

The next item of business yesterday was a “collection” of bottles, including some wine bottles that could have been brought the day before yesterday at the grocery store, with wine in them. Some of the older bottles were potentially collectible but chipped. The whole collection was valueless. At least to us.

The next item after that was in a way the exact opposite of the fake gold coin: a small jade necklace. It was real but also valueless. You can buy these trinkets from vendors at Waikiki for a dollar or two.

Sometimes it’s a relief when a customer brings in a fishing reel. Its gears may be worn out, and it may or may not be worth hundreds of dollars, but at least you don’t have to wonder if it’s “reel.”

The real McCoy

The real McCoy