In 19th century American literature, like Faulkner’s “The Hamlet,” I occasionally encounter one character writing a debit slip for another, selling debit slips, etc. What ever happened to this practice, I wonder?
I kind of like the idea of it. It give me freedom both as a borrower and lender. I also like that individuals must lend actual money, as opposed to banks who create loan money out of thin air.
This series of articles doesn’t fully answer my questions, but they shed light on a modern-day manifestation of this ancient practice.
Person-to-Person Loans
“Online networks have emerged in recent years that allow people to find loans or make them, the same way they might exchange music or bid on collectibles on eBay. The sites that are leading the trend — Prosper.com and Zopa.com — say they have noticed a spike in activity since traditional lenders began restricting second mortgages and home equity lines of credit. . . .
Prosper’s users register with the site, permit the company to pull their credit data, and then post a loan request along with an upper limit for the amount of interest they are willing to pay. Loans, which are typically financed by several people seeking to spread their risk, amortize over three years at a fixed rate, with no prepayment penalty.
Lenders review requests individually or let Prosper offer loans to borrowers who meet the lenders’ specified criteria, like credit scores or group affiliation.
Borrowers pay Prosper a fee of 1 to 3 percent of the loan, then receive a check within four days. They make monthly payments to Prosper, based in San Francisco.
The average interest rate in May for a $20,000 loan given to borrowers with excellent credit was about 14 percent, and 9.5 percent for an $8,000 loan. These rates are generally higher than what borrowers would pay with a true home equity loan, but lower than credit card interest rates. ” (Read more from nytimes.com)
Me: Feedom baby!
Virgin Money Overview
“Overview: Virgin Money is a person to person lending service that allows you to structure formal loans with people you know. Through person to person lending, you skip the bank and borrow from an individual (or group of individuals). This page is an overview of Virgin Money and the various person to person lending options there. Virgin Money was previously CircleLending.
Interest Rate: You and your lender agree on a rate, and Virgin Money uses that rate.
Repayment Schedule and Terms: Again, you and your lender decide when repayment begins and how it happens. Virgin Money allows flexibility that you might not find elsewhere (you don’t have to start repayment immediately, for example, or you might use a seasonal repayment schedule so that you can pay when your income is higher).” (Read more from about.com)
Me: Wait, wait, wait, wait, wait. Does this mean the market is capable of setting an interest rate based on risk, without the help of our Central Planning Committees in Washington? Holy Moly, imagine that!
Prosper.com creates person-to-person loan site, but can it work?
“Q: How did you come up with the idea behind Prosper.com?
The original idea behind Prosper was from our CEO, Chris Larsen. He had founded E-LOAN so he knew quite a bit about credit. And like all ideas he started with the most basic question: “Why?” Why is credit so expensive? Why is it so inflexible? Why is it so hard? And it just went from the” (Read more from intuitive.com)
The Money Mafia
“A post by Erick Schonfeld at TechCrunch today really got me riled up: The SEC has shut down Prosper, a peer-to-peer lending site. This was up in the air until yesterday:
Yesterday, the SEC issued its formal cease-and-desist letter . . . outlining its reasoning for characterizing Prosper as a seller of investment, something prosper had vigorously resisted in the past by arguing that it was merely a marketplace matching lenders and borrowers. But the SEC is having none of that.
If this sounds familiar, it’s because this is an exact rerun of what happened with the original Napster and the music industry, only worse in my opinion.
The key here is that Prosper itself was not lending or borrowing, it was simply matching up willing borrowers and willing lenders. It also provided additional services such as collection and tracking. The HORROR.
The real fact is, if private citizens were allowed to freely lend to one another, the private banking cartel that is our central banking system would lose the little control they have over the economy. The free market would freely set interest rates and people and businesses would be free to do an end-run around our corrupt and bloated financial system. The financial engineering that has allowed Wall Street to siphon off trillions of dollars in profit at our expense would be crippled. The SEC is simply acting as the enforcement arm of our private national banking cartel.” (Read more from jasonkolb.com)
Me: In fairness to the SEC, some of the comments on jasonkolb.com w.r.t. this post say that Prosper is actually holding loans for a short period of time before reselling them. That makes it a lender. There’s more to be said about whether this is an exertion of the money mafia.