You can’t dust for vomit

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Marty DiBergi: Your first drummer was —
David St. Hubbins: John “Stumpy” Pepys. Great great, tall blond geek with glasses. Good drummer: great look, good drummer.
Marty DiBergi: What happened to him?
David St. Hubbins: He died. He died in a bizarre gardening accident, some years back.
Nigel Tufnel: It was really one of those things. It was – you know, the authorities said, you know, best leave it — unsolved, really.
Marty DiBergi: And he was replaced by — ahh?
Nigel Tufnel: Stumpy Joe. Eric “Stumpy Joe” Childs.
Marty DiBergi: And what happened to Stumpy Joe?
Derek Smalls: Well, it’s not a very pleasant story, but — he died. He choked on — the official explanation was he choked on vomit. He passed away.
Nigel Tufnel: It was actually – it was actually someone else’s vomit. You know, there’s no real —
Derek Smalls: Well, they can’t prove whose vomit it was. They don’t have the ability—there’s no way of—
Nigel Tufnel: You can’t really dust for vomit.

You can’t custody cash.

This is the banker’s version of Nigel Tuffnel’s famous dictum, and yes it is just a weak excuse to include one of JC’s favourite lines from one of JC’s favourite movies.

But it’s also an opportunity to hold forth on the critical difference between pledged security interests and title transfer security interests particularly insofar as they relate to cash.

Insofar as non cash assets are concerned the practical differences of a pledged credit support arrangement with rehypothecation and a title transfer arrangement are rather formalistic. Oh, there are differences, to be sure but they are really only of interest to legal eagles and those with fiendish interests in the minutiae of securities law.

With cash, it is different. For deep philosophical reasons, you cannot separate legal and beneficial interests in cash.

A physical bank note is an instrument of indebtedness. It is a liability. You create an asset out of it by giving it away. If you give it away in return for something your contract with your counterparty is at an end. If you give it away without consideration, your counterparty owes you its return. That is to give money away without consideration is to lend.