Best of the Week
Most Popular
1. US Housing Market Real Estate Crash The Next Shoe To Drop – Part II - Chris_Vermeulen
2.The Coronavirus Greatest Economic Depression in History? - Nadeem_Walayat
3.US Real Estate Housing Market Crash Is The Next Shoe To Drop - Chris_Vermeulen
4.Coronavirus Stock Market Trend Implications and AI Mega-trend Stocks Buying Levels - Nadeem_Walayat
5. Are Coronavirus Death Statistics Exaggerated? Worse than Seasonal Flu or Not?- Nadeem_Walayat
6.Coronavirus Stock Market Trend Implications, Global Recession and AI Stocks Buying Levels - Nadeem_Walayat
7.US Fourth Turning Accelerating Towards Debt Climax - James_Quinn
8.Dow Stock Market Trend Analysis and Forecast - Nadeem_Walayat
9.Britain's FAKE Coronavirus Death Statistics Exposed - Nadeem_Walayat
10.Commodity Markets Crash Catastrophe Charts - Rambus_Chartology
Last 7 days
AI Mega-trend Tech Stocks Buying Levels Q2 2020 - 1st Jun 20
M2 Velocity Collapses – Could A Bottom In Capital Velocity Be Setting Up? - 1st Jun 20
The Inflation–Deflation Conundrum - 1st Jun 20
AMD 3900XT, 3800XT, 3600XT Refresh Means Zen 3 4000 AMD CPU's Delayed for 5nm Until 2021? - 1st Jun 20
Why Multi-Asset Brokers Like TRADE.com are the Future of Trading - 1st Jun 20
Will Fed‘s Cap On Interest Rates Trigger Gold’s Rally? - 30th May
Is Stock Market Setting Up for a Blow-Off Top? - 29th May 20
Strong Signs In The Mobile Gaming Market - 29th May 20
Last Clap for NHS and Carers, Sheffield UK - 29th May 20
The AI Mega-trend Stocks Investing - When to Sell? - 28th May 20
Trump vs. Biden: What’s at Stake for Precious Metals Investors? - 28th May 20
Stocks: What to Make of the Day-Trading Frenzy - 28th May 20
Why You’ll Never Get Another Stimulus Check - 28th May 20
Implications for Gold – 2007-9 Great Recession vs. 2020 Coronavirus Crisis - 28th May 20
Ray Dalio Suggests USA Is Entering A Period Of Economic Decline And New World Order - 28th May 20
Europe’s Coronavirus Pandemic Dilemma - 28th May 20
I Can't Pay My Payday Loans What Will Happen - 28th May 20
Predictive Modeling Suggests US Stock Markets 12% Over Valued - 27th May 20
Why Stocks Bear Market Rallies Are So Tricky - 27th May 20
Precious Metals Hit Resistance - 27th May 20
Crude Oil Cuts Get Another Saudi Boost as Oil Demand Begins to Show Signs of Life - 27th May 20
Where the Markets are heading after COVID-19? - 27th May 20
Silver Springboards Higher – What’s Next? - 26th May 20
Stock Market Key Resistance Breakout Is Where the Rubber Meets the Road - 26th May 20
5 Ways To Amp Up Your CFD Trading Today - 26th May 20
The Anatomy of a Gold Stock Bull Market - 26th May 20
Stock Market Critical Price Level Could Soon Prompt A Big Move - 25th May 20
Will Powell Decouple Gold from the Stock Market? - 25th May 20
How Muslims Celebrated EID in Lockdown Britain 2020 - UK - 25th May 20
Stock Market Topping Behavior - 24th May 20
Fed Action Accelerates Boom-Bust Cycle; Not A Virus Crisis - 23rd May 20
Gold Silver Miners and Stocks (after a quick drop) Ready to Explode - 23rd May 20
3 Ways to Prepare Financially for Retirement - 23rd May 20
4 Essential Car Trade-In Tips To Get The Best Value - 23rd May 20
Budgie Heaven at Bird Land - 23rd May 20
China’s ‘Two Sessions’ herald Rebound of Economy - 22nd May 20
Signs Of Long Term Devaluation US Real Estate - 22nd May 20
Reading the Tea Leaves of Gold’s Upcoming Move - 22nd May 20
Gold, Silver, Mining Stocks Teeter On The Brink Of A Breakout - 21st May 20
Another Bank Bailout Under Cover of a Virus - 21st May 20
Do No Credit Check Loans Online Instant Approval Options Actually Exist? - 21st May 20
An Eye-Opening Perspective: Emerging Markets and Epidemics - 21st May 20
US Housing Market Covid-19 Crisis - 21st May 20
The Coronavirus Just Hit the “Fast-Forward” Button on These Three Industries - 21st May 20
AMD Zen 3 Ryzen 9 4950x Intel Destroying 24 core 48 thread Processor? - 21st May 20
Dow Stock Market Trend Analysis and Forecast - 20th May 20
The Credit Markets Gave Their Nod to the S&P 500 Upswing - 20th May 20
Where to get proper HGH treatment in USA - 20th May 20
Silver Is Ensured A Prosperous 2020 Thanks To The Fed - 20th May 20
It’s Not Only Palladium That You Better Listen To - 20th May 20
DJIA Stock Market Technical Trend Analysis - 19th May 20
US Real Estate Showing Signs Of Covid19 Collateral Damage - 19th May 20
Gold Stocks Fundamental Indicators - 19th May 20
Why This Wave is Usually a Market Downturn's Most Wicked - 19th May 20
Gold Mining Stocks Flip from Losses to 5x Leveraged Gains! - 19th May 20
Silver Price Begins To Accelerate Higher Faster Than Gold - 19th May 20
Gold Will Soar Soon; World Now Faces 'Monetary Armageddon' - 19th May 20

Market Oracle FREE Newsletter

Coronavirus-stocks-bear-market-2020-analysis

Investing in the Next Google, P2P More than Just Sharing Songs

Companies / Tech Stocks Oct 09, 2009 - 05:06 PM GMT

By: Alex_Daley

Companies

Best Financial Markets Analysis ArticleYou know that house down the street that’s for sale? The gigantic castle of a house, with an uncut lawn, a few weeks away from foreclosure? That’s your fault. After all, it was you who loaned the former owners the money for the house they could never afford.


No way, you say? You’d never have loaned any money to that irresponsible hack. But of course you did lend it to him… just not directly. That’s what banks are for -- lending your money to other people, often people just like the owner of that house.

Forgetting for the moment how modern finance found a way to twist and pervert the banking system to its breaking point, for hundreds of years the foundation has been one of shared benefit and distributed risk. You keep some portion of your savings in a bank, and in exchange they share back a percentage of the proceeds from lending your money to others (including Mr. Irresponsible), keeping a cut for themselves.

That’s been the only option. Until now…

If the Internet is good at one thing, it is connecting large numbers of people to each other. Thus it seems only logical that the Web would be a more efficient way of matching lenders to buyers than any one local or even national bank. Electronic systems can connect people at scale, automating an otherwise manual process and eliminating scores of middlemen from the process. And that is exactly what a handful of new lending institutions on the Web -- such as www.prosper.com and www.lendingclub.com -- are starting to do.

They call it “peer-to-peer (or P2P) lending,” and the premise is simple: I have money I am willing to lend; you would like to borrow some; these companies bring us together and facilitate the loan. Because their systems are automated and connect lenders and borrowers more directly, the companies can afford to take much smaller commissions on the loan than a traditional bank.

As a result, you enjoy a much higher yield than on your savings account, and they attract borrowers by undercutting bank rates. Prosper’s returns for lenders average 7.02% for the highest three credit grades (the only data they make available). Lending Club averages 9.62% across all loans for investors. And credit is available to borrowers as low as 7.89%, much cheaper than most banks.

An investor can diversify by bidding to fund portions of many loans, in increments as low as $25 each. A $5,000 loan might be spread across as many as 200 individual lenders, each choosing to purchase a $25 note. The process is largely invisible to the borrowers, as they receive just one payment and pay just one bill. The companies collect and distribute the payments to each lender, proportionally to the amount each funded.

One of the more interesting, and unconventional, aspects of the sites is the way they use social networking tools to provide lenders and borrowers with a way to connect more directly. On each site, borrowers are required to provide not only credit history and similar information, but a brief personal statement on why they want the loan, and anything else they think is relevant. Lenders can browse the loans and pick specific people and specific requests they want to fund. Prosper.com takes this farther than LendingClub.com, allowing borrowers to add photos and encouraging more dialogue -- on Lending Club, the descriptions are often just simple half-liners like “Buying a used Acura RSX.”

Browsing the loan requests provides a fascinating peek into what people borrow money for (weddings, used cars, debt consolidation, and home repairs look to be the most common, in no specific order), not to mention their credit histories, borrowing habits, and even spelling and grammar…

This technique of hand picking loans only scales so far, especially when lending $25 at a time. So both lenders also offer automated matching of loans to your criteria (loan amount, credit score, etc.). Prosper.com’s system is more automated and much simpler to use, but both are adequate for the job.

Of course, you also lose the liquidity that comes with indirect vehicles like bank accounts. But both lenders try to address this issue by packaging your loans as notes and allowing you to trade the notes in a market provided by FOLIOfn. Prosper.com has only recently restarted lending after a government-mandated quiet period while their note model was reviewed by the SEC, so activity on their trading platform is limited as they build the network. However, the Lending Club version is working smoothly, providing decent near-term liquidity options (and some good opportunities for arbitrage, we imagine).

If you’re looking for a way to diversify some of your investment activity beyond traditional stocks, bonds, futures, and the like, P2P loans could make for an interesting choice. Or if you just want to try the next new thing, they make for an entertaining way to play banker for a day (or 36 months, the length of the loan terms on both sites).

Technology is the number one growth industry in the U.S. – and many of those investors who have kept their eyes open for new, promising tech developments have been making fortunes in the process. Just think of the lucky people who invested in Google when it was still a small startup.

Finding the next Google is not impossible, but you have to know what to look for. Read this new report to get some ideas… click here.

© 2009 Copyright Casey Research - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules