2008

What Happened to the Credit Market, And How Will It Impact Our Industry

November 2008

These troubling days in the world economy are also troubling days for the diamond industry. While we are a very tiny part of the overall economy, here is a simple story to illustrate what's happening to the credit market: a story about "Hershele Ostropoler," a prominent figure in Jewish humor in 18th century.

Hershele went to the store to buy candy, but the storekeeper told him he didn't have enough money to buy candy. The poor boy went home and cried to his mother, that it wasn't fair that they wouldn't sell to him, while at the same time some wealthy people were able to buy by "signing a piece of paper." The mother said, "Well, if the storekeeper lets all the poor people sign pieces of paper, he will become poor like us." Hershele said, "Then he can sign a piece of paper."

And that is how the mortgage markets worked. Everything worked fine, until someone wanted to stop getting paper and see results.

In our industry, suppliers are apprehensive about extending credit or leaving goods on memo, because of a general fear of bankruptcies. People don't want "paper" anymore. They want money.

The practice of long-term memo and consignment will dwindle down, possibly to zero. At a recent meeting of the Diamond Manufacturers Association, two attorneys warned that dealers had to require the proper forms, or they shouldn't give credit. No one wants to be another Fabrikant, which, like the mortgage marketers we hear about on the news, was too generous about extending credit and eventually went bankrupt.

Cash will be king. Those who are liquid, and can pay immediately, will be getting bargains. We ourselves cut back in the memorandum business 90%. However, we give consumers the same prices as jewelers, because they pay upfront.