Wednesday, April 8, 2009

Repo Markets in Everything

I'm by no means an expert on Jewish Law (in fact, I know almost nothing). But this caught my eye.

I'm talking about repurchase agreements tonight. For the unitiated, a "repo" is a form of short-term borrowing where party A sells a security (or a good) to party B, and simultaneously agrees to buy (i.e. repurchase) the item/security back a short while later at a higher price. In effect, it's a short term loan from B to A, with collateral.

Marginal Revolution (it's part of their "markets in everything" series) points to an unuaual example of a repo: every year, an Arab hotel manager signs a repo agreement with the chief Rabbis of Israel to purchase all bread, pasta, and beeer in Israel until the end of Passover. At that point, the title of the goods reverts back to the Israelis. This allows the Israelis to satisfy the requirement of the Jewish religious law without making costly transfers of the goods in the spot market.

Read the whole story here.