Whatever comes to mind, and then the interesting directions that thought will take you on the web.

Monday, July 06, 2009


Early in January 2008, a neighbor told me about a site called Prosper.com.

The premise of the site is to facilitate person to person lending and borrowing.

A borrower would post their loan requirement, (amount and maximum interest rate), details of why they wanted to borrow money, and why they could be trusted to repay the loan. Prosper would add information on the borrower's position - eg credit grade, number of credit requests, home owner, debt to income ratio, etc.

Lenders would then bid a certain amount, and the minimum interest rate they would accept. Prosper.com acted as the middle man - dealing with the Note contract, collecting and distributing the money.

From everybody's perspective, seems like a good deal.
  • Borrowers, many of whom were trying to pay off usurious credit card balances got lower rates than they could get from banks
  • Lenders got higher rates than they were used to (at the cost of greater risk
So - great on paper, but a year and a half later, here's what has happened:

  • Prosper has had to stop accepting new borrowers and loan requests.
  • My personal experience has been to witness first hand the ability for people to borrow money, probably with no intention of ever paying it off.

    Of the 45 loans that I have made, 13 have been charged off (2 in bankruptcy)

    Looking back on some of these loans, take loan "Expanding my Growing Business". The borrower got $20,000. My share was $181.92. The Credit Grade was AA! The person ended up making 2 payments, and the loan has been "charged off in collections" since Mar 28, 2008
It got me thinking that the good payers are spending a lot of money subsidizing the bad payers.