Kite-Flying in Finance
What is Kite-Flying?
In the colorful world of finance, where not everything is black and white, kite-flying or kiting refers to the slightly grey practice of floating through air—financially speaking, of course. It involves the discounting of an accommodation bill at a bank with the cheeky hope (but quiet acknowledgment) that the paper will bounce back faster than a rubber ball. Essentially, it’s the banking equivalent of “try catching me if you can!”
How Does it Work?
Imagine you’re at a fanciful dinner and decide to play a passing game with a hot potato. In kite-flying, the hot potato is an accommodation bill—essentially a promissory note without any backing assets. The ‘game’ is to pass it through several banks or parties, generating liquidity. This liquidity is as temporary as a Snapchat message, vanishing once the note is revealed to be unsupported. Practitioners of kiting use it to exploit the float, the time it takes for the banking system to process checks or bills, to temporarily inflate bank account balances.
The Legality and Risks
Kiting is like juggling knives. It seems like a thrilling trick but slip once, and you’re in a world of hurt. Technically, it walks a tightrope over legality; often, it crosses into fraud territory which can attract legal actions. This financial acrobatics can result in severe penalties including criminal charges, especially when the checks bounce higher than expected.
Real World Examples
Throughout financial history, several high-profile cases of kiting have surfaced, involving major corporations and banks, often culminating in spectacular financial fireworks when the scheme crumbles.
Ethical Considerations
Employing kite-flying in one’s financial management repertoire is akin to using a sieve to bail water out of a boat—both ineffective and suspect in practicality. Ethical banking and financial management practices dictate transparency and commitment to real-value transactions, not air-filled promissories fluttering about.
Related Terms
- Accommodation Bill: A type of bill used in kiting, serves as a promise without backing.
- Check Kiting: A similar concept where checks are written despite insufficient funds, relying on the processing delay.
- Float Time: The interval between when a check is deposited and the funds are available.
Suggested Reading
To dig deeper into the world of financial maneuvers and their consequences:
- “Catch Me If You Can” by Frank W. Abagnale - A thrilling recount of real-life fraud escapades.
- “The Art of Deception” by Kevin D. Mitnick - Offers insights into elaborate scams and deceptive practices in various fields, including banking.
Kite-flying in finance is less about the fun of flying kites and more about navigating the stormy skies of ethical and legal boundaries. It’s always best to keep both feet and your finances firmly on the ground.
