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SEC shutting down peer to peer lending site Prosper

  • Category :
  • the market
  • November 27th, 2008

    SEC outlines its reasoning for shutting down P2P lending Prosper citing that since the intention for lending is to expect a certain rate of return, it fits the definition of investing. Therefore the market enabler should be regulated. There are people who believed the SEC is focusing on the wrong thing and going after the small investor who is turning a small profit. I happen to agree with the SEC. What other people do with their money is none of my problem, but how many people who lend on prosper you think actually have an understanding on how current economic condition will affect the default rate of the loans they are making.

    I am not saying having financial knowledge will allow you to make a better loan decision, but most people I’ve seen lending on P2P site operate solely on the default rate and interest given by the site based on historical data. When you simplify a loan which has various forward credit risk and interest rate risk into a simply expected rate of return and sell that to the public, that’s no difference than what got the big guys into the CDO mess in the first place.

    Entry Filed under: the market

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