Comments on: The right idea for the times | UncrunchAmerica

By: Colin

Colin — Tue, 06 Jan 2009 04:14:35 +0000

@Guillaume – while there are borrowers and lenders, the other [important] variable is the social lending platform. The degree of quality analytics, consistency of process, consistency of credit presentation, and accuracy of identity verification offerred by the platform(s) will be an essential component in what could otherwise be a chaotic environment. These will be essential components in finding the balance you rightly speak of.

By: Guillaume

Guillaume — Tue, 06 Jan 2009 02:40:26 +0000

I think the fundamental question is whether a better appreciation of risk and return can be achieved by a small number of professionals at banks or by a large number of relatively inexperienced yet sometimes more intimate lenders.

I don’t think it’s a black/white question and it will take time to find the right balance, but I think our government bodies should encourage social lending experiments such as UncrunchAmerica instead of making the lives of social lenders difficult (see SEC action). While some banks are too big to fail, social lending are too small to cause pain.

By: Colin

Colin — Sun, 04 Jan 2009 05:55:38 +0000

@Thomas … RE: reserves: that argument in the Hussman piece is relevant only if Banks want to lend and in a relatively risk free environment are seeking ways to lend. The issue here (imho) is that banks want to build reserves notwithstanding what the Central Banks wants. They know they have and will have more of loan losses, so they need the reserves.

Otherwise yes, I agree with your other thoughtful points.

By: Thomas Barker

Thomas Barker — Sat, 03 Jan 2009 12:16:40 +0000

I think the main issue these sites can help with is trust. No-one now trusts the loan originators to check for fraud, or creditworthiness, or, in some cases, death. Even if they did, the ratings agencies have completely discredited themselves, so the ABS couldn’t be sold. If Uncrunch & co. offer an audit-able loans pipeline, the actual credit worthiness is secondary.

IFAIK your argument about reserves is somewhat outdated.
http://www.hussman.net/html/fedirrel.htm

Douglas is right, the tide is going back out to sea for everyone. But a return to 1970s levels of consumer lending can’t be that bad. Historically households have only used credit for extremely large durables (houses&cars) or emergencies, with substantial deposits.

By: Douglas

Douglas — Wed, 31 Dec 2008 14:34:51 +0000

I love the entrepreneurial spirit of this activity (I had been an active lender at Prosper for quite a while).

If you think about banking in its simplest terms, it hasn’t changed since the 1700′s when banks facilitated the saving/borrowing function between neighbors. What has changed is the amount of losses (in the worst case, fraud) that has created the need for expensive regulations, which still don’t protect the banks, consumers or businesses.

While this concept is great, what happens when fraud is introduced to individuals lending to individuals and losses begin to mount? As the risk of losing an individual’s savings grows, the peer to peer lending will also experience liquidity constraints and/or exorbitant interest rate pressure to justify the investment.

I hope this kind of lending continues to grow (competition is good), but since most people work towards their own self interest, let the buyers beware.