Subprime lending -- a risk, return and correlation profile that are very distinct from money market + small enhancement lending. There are different tranches that you can choose from, ranging from AA to E or HR.
P2P lending may have differing relevance levels for people of different risk aversion classes, but modern portfolio theory (much of which is admittedly a crock) would argue that any asset w/some diversification value should make up some (perhaps small) part of people's portfolio.
I wouldn;t replace my USAA Performance First account w/ Prosper or Zopa lending, but I would put a chunk of my money in Prosper's sub sub prime borrowers.
In fact, many lenders on Prosper are far smarter and more flexible than banks and bank reviewers can ever be, and they're vocal about their findings. I suspect that this more than outweighs the disadvantages that they start out with (no fancy models, etc)
See prosper self-policing of loans by lenders (and one guy who loves posting on forums about illegit loans, even though he seems to have lent no money on Prosper...) -- there's something addictive about exposing scams...
I think that many lenders instinctively penalize pics from borrowers that seem fake, sexed-up, or pimp out borrowers' teenage daughters (figuratively, anyway: http://www.prosper.com/public/lend/listing.aspx?li stingID=13608 ).
Many lenders realize that manipulation of this sort is a bad signal. If anything, a fair-sized chunk (though by no means majority) of the Prosper lender population is composed of technological and financial early adopters, who tend to possess a certain degree of internet-tempered cynicism about listings, and resort to various forms of vetting of borrowers' stories. They also tend to be most vocal about their discoveries on forums and informal lenders' groups. In essence, every lender gets to free ride the efforts of the obssessive crusaders. of Prosper In fact, stronger social grouping seems to be forming among various lenders than borrowers.
Frequently, dishonest borrowers get ripped apart as lies are exposed on Prosper forums-- examples:
http://prosper.spreebb.com/index.php?showtopic=134 2
Borrower's securities fraud record dug up by lenders:
http://prosper.spreebb.com/index.php?showtopic=784
The borrower who was a guy/girl/puppy...
http://prosper.spreebb.com/index.php?showtopic=578 &hl=
Lenders rip on each other as they argue about vetting the vetters:
http://prosper.spreebb.com/index.php?showtopic=604
If nothing else, I suspect that even the shrewder investors spend inordinate amounts of time vetting, interacting, and bidding, and if they instead spent their marginal chunks of time on their day jobs or other forms of investing, they'd undoubtedly get superior returns. Nonetheless, investing in Prosper has an engagement level and addictivity similar to online poker, only w/better odds, and as such, the concept will prosper, even if true economic returns are lower than accounting returns.
Additionally, in order to surmount state-set interest rate limits, they've already snagged tons and tons of special lender licenses (not that they are lending illegally in other states) on a state by state basis:
http://www.prosper.com/public/legal/states_and_lic enses.aspx
In fact, Prosper is CEO'd by the founder of ELOAN, funded by Benchmark Capital (a major funder of eBay), Pierre Omidyar (eBay's founder)'s foundation, Accel Partners, etc, among others. Pedigree may not translate into startup success, but it usually does translate into hiring expensive lawyers w/VC money, etc.
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Subprime lending -- a risk, return and correlation profile that are very distinct from money market + small enhancement lending. There are different tranches that you can choose from, ranging from AA to E or HR.
P2P lending may have differing relevance levels for people of different risk aversion classes, but modern portfolio theory (much of which is admittedly a crock) would argue that any asset w/some diversification value should make up some (perhaps small) part of people's portfolio.
I wouldn;t replace my USAA Performance First account w/ Prosper or Zopa lending, but I would put a chunk of my money in Prosper's sub sub prime borrowers.
In fact, many lenders on Prosper are far smarter and more flexible than banks and bank reviewers can ever be, and they're vocal about their findings. I suspect that this more than outweighs the disadvantages that they start out with (no fancy models, etc)
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4 2can ever be
See prosper self-policing of loans by lenders (and one guy who loves posting on forums about illegit loans, even though he seems to have lent no money on Prosper...) -- there's something addictive about exposing scams...
Borrower's securities fraud record dug up by lenders:
http://prosper.spreebb.com/index.php?showtopic=78
The borrower who was a guy/girl/puppy...
http://prosper.spreebb.com/index.php?showtopic=57
Lenders rip on each other as they argue about vetting the vetters:
http://prosper.spreebb.com/index.php?showtopic=60
http://prosper.spreebb.com/index.php?showtopic=13
I think that many lenders instinctively penalize pics from borrowers that seem fake, sexed-up, or pimp out borrowers' teenage daughters (figuratively, anyway: http://www.prosper.com/public/lend/listing.aspx?li stingID=13608 ).
Many lenders realize that manipulation of this sort is a bad signal. If anything, a fair-sized chunk (though by no means majority) of the Prosper lender population is composed of technological and financial early adopters, who tend to possess a certain degree of internet-tempered cynicism about listings, and resort to various forms of vetting of borrowers' stories. They also tend to be most vocal about their discoveries on forums and informal lenders' groups. In essence, every lender gets to free ride the efforts of the obssessive crusaders. of Prosper In fact, stronger social grouping seems to be forming among various lenders than borrowers.
Frequently, dishonest borrowers get ripped apart as lies are exposed on Prosper forums-- examples:
http://prosper.spreebb.com/index.php?showtopic=134 2
Borrower's securities fraud record dug up by lenders:
http://prosper.spreebb.com/index.php?showtopic=784
The borrower who was a guy/girl/puppy...
http://prosper.spreebb.com/index.php?showtopic=578 &hl=
Lenders rip on each other as they argue about vetting the vetters:
http://prosper.spreebb.com/index.php?showtopic=604
If nothing else, I suspect that even the shrewder investors spend inordinate amounts of time vetting, interacting, and bidding, and if they instead spent their marginal chunks of time on their day jobs or other forms of investing, they'd undoubtedly get superior returns. Nonetheless, investing in Prosper has an engagement level and addictivity similar to online poker, only w/better odds, and as such, the concept will prosper, even if true economic returns are lower than accounting returns.
Additionally, in order to surmount state-set interest rate limits, they've already snagged tons and tons of special lender licenses (not that they are lending illegally in other states) on a state by state basis: http://www.prosper.com/public/legal/states_and_lic enses.aspx
In fact, Prosper is CEO'd by the founder of ELOAN, funded by Benchmark Capital (a major funder of eBay), Pierre Omidyar (eBay's founder)'s foundation, Accel Partners, etc, among others. Pedigree may not translate into startup success, but it usually does translate into hiring expensive lawyers w/VC money, etc.