Post by krusader74 on Feb 8, 2014 3:55:06 GMT -6
In B2 Keep on the Borderlands, p. 9, we find this:
When I played this module as a kid, we ignored the loan bank. We didn't try to rob it. We didn't borrow any money. And we started off too poor to afford anything from the pawn shop.
But re-reading this recently got me thinking about Medieval finance in general and this Loan Bank in particular. Some of the questions this block of text raised for me:
Deposits. No storage fee on deposits left over a month. Does the banker have the right to "lend out" stored items, the way banks lend out deposits or the way stock brokers lend their clients' stocks to short-sellers? Would seem so, otherwise he would charge a long term storage fee, right? What if the players come back in 6 months and can't get their deposit back because its loaned out? Will they start a run on the bank?
Interest. "Interest rate of 10% per month": Simple or compund interest? As a reminder, for simple interest: FV = PV*(1 + r*t), where FV is future value, PV is present value, r is rate, and t is time. So for a 12-month loan, FV = PV*(1 + 0.10*12) = PV*2.2. For compund interest: FV = PV*(1 + r)^t. For a 12-month loan FV = PV*1.10^12 = PV*3.13842837672.
Magic. The bank clerk is a magic user with Sleep and Ventriloquism prepared. Why doesn't he have Detect Magic and Dispell Magic prepared instead? E.g., In case someone tries to cast Charm Person to defraud him? In a fantasy setting, banks not only need to worry about mundane thieves. They also need to worry about thieves with magic and psionics.
Pawn brokering. How long until the pledge becomes the property of the banker? I can try to analyze this problem from the viewpoint of the borrower. The borrower has two options: He can either repay the principal and interest and redeem the pledge; or he can default on the loan and forfeit ownership of the item. If he were a rational agent, he'd choose the option that minimizes his loss. Assume without loss of generality that PV=1 and the bank charges simple interest. The borrower must leave a pledge worth 2 units. Then at t=10 months, both options (repay or default) result in a series of cashflows that incur a loss of 1 unit, so the borrower is indifferent. For t<10 months, the borrower should repay, because his loss is always less than the loss of 1 unit he incurs if he defaults. In fact, he should repay ASAP to minimize his loss. For t>11 months, the borrower should default, since the loss he incurs by repaying is greater than the loss of 1 unit he incurs by defaulting. OTOH, the banker would like to seize the pledge right away, since he's buying it for 1 and reselling it for 2, so the fact that he offers a redemption period at all means there's very few suppliers willing to sell to him at a 50% discount. This argument applies to months 1-10, at which point we see that a rational borrower will simply walk away. Therefore, at this rate of simple interest, the pledge should become the property of the banker at 10 months after the origination of the loan.
Laws and regulations. What kind of laws and regulations existed on banks like this? Here's a sampling of laws on pawn brokering from ancient Roman times to the present:
Competition. What other sources of financing adventures and exploration might exist in a Medieval fantasy setting, other than the local pawn broker?
Historical roleplaying. If you're playing in Medieval Europe, during the Crusades say, how do you resolve the conflict between the Church and the moneylenders? In Genesis 3:19, God tells Adam he must earn his bread through the sweat of his brow. But moneylenders literally earn interest in their sleep. Throughout the Bible, we see outright condemnnation of moneylending:
We even see the death penalty imposed on moneylenders:
So in 325AD, the First Council of Nicaea forbade clergy from engaging in usury which was defined as lending on interest above 1 percent per month (12.7% APR), and later ecumenical councils applied this regulation to the laity.
In the book Money, Morality, and Culture in Late Medieval and Early Modern Europe edited by Juliann M. Vitullo and Diane Wolfthal, we see that the early Latin and Greek Church Fathers portrayed Judas' betrayal as the more visible manifestation of a vicious attitude toward money (p. 34). We also see moneylending portrayed as sexual perversion:
Despite the stigma attached to moneylending, it continued. The Church often looked the other way or viewed it as a "necessary evil." In the book, A History of Interest Rates by Sidney Homer, we see that over time, Church scholars found "loopholes" in the Biblical prohibitions on moneylending. The distinction between "usury" and "interest" is one such loophole:
So when was it OK to make money on a loan and avoid eternal d**nation?
Other sources. Where else do we see moneylenders in official D&D material? One other place I know is T1 The Village of Hommlet:
"THREE YELLOW BALLS": The three sphere symbol is attributed to the Medici family of Florence, Italy, owing to its symbolic meaning of Lombard. This refers to the Italian province of Lombardy, where pawn shop banking originated under the name of "Lombard banking."
Final question. Have you used moneylenders in your D&D campaigns?
11. LOAN BANK: Here anyone can change money or gems for a 10% fee. The banker will also keep a person's wealth stored safely at no charge if it is left for at least one month, otherwise there is a 10% fee. Loans at an interest rate of 10% per month can be obtained for up to 5 gold pieces with no security deposit; over 5 gold pieces requires some item of at least twice the value of the loan.
When I played this module as a kid, we ignored the loan bank. We didn't try to rob it. We didn't borrow any money. And we started off too poor to afford anything from the pawn shop.
But re-reading this recently got me thinking about Medieval finance in general and this Loan Bank in particular. Some of the questions this block of text raised for me:
Deposits. No storage fee on deposits left over a month. Does the banker have the right to "lend out" stored items, the way banks lend out deposits or the way stock brokers lend their clients' stocks to short-sellers? Would seem so, otherwise he would charge a long term storage fee, right? What if the players come back in 6 months and can't get their deposit back because its loaned out? Will they start a run on the bank?
Interest. "Interest rate of 10% per month": Simple or compund interest? As a reminder, for simple interest: FV = PV*(1 + r*t), where FV is future value, PV is present value, r is rate, and t is time. So for a 12-month loan, FV = PV*(1 + 0.10*12) = PV*2.2. For compund interest: FV = PV*(1 + r)^t. For a 12-month loan FV = PV*1.10^12 = PV*3.13842837672.
Magic. The bank clerk is a magic user with Sleep and Ventriloquism prepared. Why doesn't he have Detect Magic and Dispell Magic prepared instead? E.g., In case someone tries to cast Charm Person to defraud him? In a fantasy setting, banks not only need to worry about mundane thieves. They also need to worry about thieves with magic and psionics.
Pawn brokering. How long until the pledge becomes the property of the banker? I can try to analyze this problem from the viewpoint of the borrower. The borrower has two options: He can either repay the principal and interest and redeem the pledge; or he can default on the loan and forfeit ownership of the item. If he were a rational agent, he'd choose the option that minimizes his loss. Assume without loss of generality that PV=1 and the bank charges simple interest. The borrower must leave a pledge worth 2 units. Then at t=10 months, both options (repay or default) result in a series of cashflows that incur a loss of 1 unit, so the borrower is indifferent. For t<10 months, the borrower should repay, because his loss is always less than the loss of 1 unit he incurs if he defaults. In fact, he should repay ASAP to minimize his loss. For t>11 months, the borrower should default, since the loss he incurs by repaying is greater than the loss of 1 unit he incurs by defaulting. OTOH, the banker would like to seize the pledge right away, since he's buying it for 1 and reselling it for 2, so the fact that he offers a redemption period at all means there's very few suppliers willing to sell to him at a 50% discount. This argument applies to months 1-10, at which point we see that a rational borrower will simply walk away. Therefore, at this rate of simple interest, the pledge should become the property of the banker at 10 months after the origination of the loan.
Laws and regulations. What kind of laws and regulations existed on banks like this? Here's a sampling of laws on pawn brokering from ancient Roman times to the present:
- Pawnbrokers need to pay the local government a fee to secure a license before they may open for business.
- Laws establish the redemption period; e.g., 1 year + 7 days for items of small value.
- Items of small value became property of broker. But large items must be auctioned and may be redeemed until auction; auctions may only be held on the 1st monday of Jan, Apr, Jul, Oct.
- Laws establish interest rates.
- There was a reward for reporting illegal rates of intrerest.
- Illegal to take items from underage (<12 yo) or intoxicated persons.
- Illegal to take stolen goods (fencing).
- Some items may be illegal: In Roman law, wearing apparel, furniture, and instruments of tillage, could not be pledged.
- Must inscribe the word "pawnbroker" in large letters over the door.
Competition. What other sources of financing adventures and exploration might exist in a Medieval fantasy setting, other than the local pawn broker?
- Work as hirelings. On p. 4 "Dividing Treasure and Computing Experience," B2 says: "Ideally, treasure should be divided equally among surviving player characters, with retainers usually receiving an equal share (minus any advance payment already given them)." We normally think of the PCs hiring henchmen. But why shouldn't the PCs work as henchmen, especially when they are just starting out at first level and lack money? They can get an advance to buy weapons and armor. And they still get an equal share of the treasure if they survive.
- Royal treasury. In England, the government financed the explorer John Cabot. In Spain, Columbus got financed by Isabella, who in turn pawned her royal jewels.
- Church:
- Monte di pietà (Mount of piety). Set up by the Franciscan monks, this charity worked like a pawn brokerage, except (1) the loans were small, (2) there was absolutely no interest on the loans in keeping with the Biblical prohibitions on usury, and (3) small donations were expected in lieu of interest. The monks raised capital in several ways: (a) renting land, (b) donations, esp. on Palm Sunday, (c) small donations from people repaying principal and redeeming pledges. Unlike pawn shops, the monks would not accept pledges of things like clothes or farming tools.
- Knights Templar. See Aher's post on this.
- The Papal Treasury (Apostolic Chamber) sometimes financed Crusades and whatnot.
- Joint‐stock companies. Other than John Cabot, most English explorers financed themselves this way. See this article.
- Illicit sources. Expect rates of 10% or 20% per week for small loans.
- Loan sharks, leg breakers, body sharks. You can probably find these guys at the Thieves Guild.
- The Cult of Mammon. Their leader is Gordon Gecko. His sermons all sound like this: "Greed, for lack of a better word, is good. Greed is right. Greed works [...]" This guy will gladly lend you whatever you want, but if you don't repay on time, he'll sacrifice you to his god (ממון="money").
Just remember, "Ye cannot serve God and mammon" (Matthew 6:24).
Historical roleplaying. If you're playing in Medieval Europe, during the Crusades say, how do you resolve the conflict between the Church and the moneylenders? In Genesis 3:19, God tells Adam he must earn his bread through the sweat of his brow. But moneylenders literally earn interest in their sleep. Throughout the Bible, we see outright condemnnation of moneylending:
If any of your fellow Israelites become poor and are unable to support themselves among you, help them as you would a foreigner and stranger, so that they can continue to live among you. Do not take interest or any profit from them, but fear your God, so that they may continue to live among you. You must not lend them money at interest or sell them food at a profit. I am the Lord your God, who brought you out of Egypt to give you the land of Canaan and to be your God. (Leviticus 25:35-38; NIV)
We even see the death penalty imposed on moneylenders:
He lends at interest and takes a profit. Will such a man live? He will not! Because he has done all these detestable things, he is to be put to death; his blood will be on his own head. (Ezekiel 18:13; NIV)
So in 325AD, the First Council of Nicaea forbade clergy from engaging in usury which was defined as lending on interest above 1 percent per month (12.7% APR), and later ecumenical councils applied this regulation to the laity.
In the book Money, Morality, and Culture in Late Medieval and Early Modern Europe edited by Juliann M. Vitullo and Diane Wolfthal, we see that the early Latin and Greek Church Fathers portrayed Judas' betrayal as the more visible manifestation of a vicious attitude toward money (p. 34). We also see moneylending portrayed as sexual perversion:
Condemnations of usury made much of the notion that interest on loans was a perverse parody of sexual fertility, making barren metal increase as if it were a living being; Dante famously placed the usurers with the sodomites in the Inferno, on the grounds that both perverted natural processes of generation, and were thus violent against God. In Timon of Athens money is not merely a medium of exchange; it is a source of desire and pleasure, fertility far beyond the bounds of natural sexuality (p. 76).
Despite the stigma attached to moneylending, it continued. The Church often looked the other way or viewed it as a "necessary evil." In the book, A History of Interest Rates by Sidney Homer, we see that over time, Church scholars found "loopholes" in the Biblical prohibitions on moneylending. The distinction between "usury" and "interest" is one such loophole:
The Latin noun usura means the "use" of anything, in this case the use of borrowed capital; hence usury was the price paid for the use of money. The latin verb intereo means "to be lost"; a substantive form interisse developed into the modern form "interest." Interest was not profit but loss.
So when was it OK to make money on a loan and avoid eternal d**nation?
- Late fees. When a loan was not repayed at the agreed time, a penalty for delay might be charged. Penalties sometimes ran to double the amount lent.
- Wages. Compensation for the banker's time and effort in making loans.
- Opportunity cost. When money could clearly have been used if not loaned. Or the loss incurred in selling property in order to raise the money to lend.
- Operating costs. Fees for pawn tickets. Fees for the storage and handling of pledges.
- Repo agreements: "A Mohatra contract is way of loaning money with interest without breaking the letter of the usury laws. The lender sells the borrower a trivial object to be paid for on the loan due date. The borrower then sells the same object back immediately for cash at the price minus the interest" (Source).
Other sources. Where else do we see moneylenders in official D&D material? One other place I know is T1 The Village of Hommlet:
15. STURDY NEW BUILDING WITH A SIGN SHOWING THREE YELLOW BALLS: This is the moneychanger's shop. [...] He will happily exchange coins or metal for other exchange media, charging only 10% of the value. [...] Nira buys gems for 50-80% of their value and sells them for 102-120% of their value (p. 5).
"THREE YELLOW BALLS": The three sphere symbol is attributed to the Medici family of Florence, Italy, owing to its symbolic meaning of Lombard. This refers to the Italian province of Lombardy, where pawn shop banking originated under the name of "Lombard banking."
Final question. Have you used moneylenders in your D&D campaigns?
