Cooperation Commons: Interdisciplinary study of cooperation and collective action.
The Prosper Lender Rebellion, and the US Credit/Borrowing Black Hole
By samrose, published at 16 August 2007 - 8:55pm, last updated 6 years 48 weeks ago.
The P2P Lending enabler-site http://prosper.com is experiencing a rebellion by it's lenders, mostly found on it's forums:
See: ”FLASH:Prosper bans $100.000 lender“, “Prosper Mng. Living Under a Rock“, “Shooting the Messenger“, “What happens if Prosper goes under?“, “I am done lending on Prosper“, “Hello Prosper Moderator“, “Lender’s WHO are DONE with Prosper“, “My letter to Prosper” and ”Open letter to John Witchel“.
Apparently, the problem lies in Prosper's reported un-responsiveness to their lender community. The lenders have raised issues about Prosper's lack of effective collections on deliquent loans, and Prosper's reported past inaction on preventing "blenders" (people who are both borrowers and lenders, or group leaders who are also borrowers) from lending money when they are deliquent on their own Prosper loan payments. Apparently Prosper.com has since announced that it will take action on deliquent "blenders".
It is my theory that many people are likely defaulting on their Prosper loans because they are over-extended in credit. Because of the huge problem in the US with people being over-extended on their credit, Prosper is affected by the same factor as any unsecured credit lending entity. When people find out that they have a chance to obtain unsecured credit, whether they are over-extended or not, they are flocking to Prosper, and they are getting money, and they are not paying it back.
This actually reflects a deeper problem with the economy in America (and possibly elsewhere): for a huge amount of individuals, borrowing money is the only way to raise capital in the immediate future. roughly 6 in 10 US citizens are in Debt. Especially given economy slowdowns in many areas across the US over the past 8+ years, this also means things like getting a raise from your employer, or changing employers to increase wages is less likely of an option for a huge amount of people. So, people are turning to borrowing money.For the last 8+ years, there has also been an explosion in US subprime lending. This led to a mortgage bubble that is now collapsing in the US. In my opinion, our total societal system is broken when companies respond to economic downturns by stepping in to tempt people with quick money that the companies know many of them will not be able to pay back. In the case of mortgages, this means that finance companies acquire property when borrowers default.
For a system like Prosper to work in the long term, lenders and borrowers need literacies and knowledge to know when to borrow, and when to lend. Otherwise, Prosper will end up becoming part of the problem.
And, in general, there is a greater need now more than ever, for people to have other ways to invest in one another, and for individuals to raise capital, and to have the knowledge and personal infrstructure to use the capital in sustainable ways, that increase the chances that investors see ROI.
We've been discussing these ideas at http://barcampbank.com, and at http://www.aboutus.org/RiskSharingPassiveReturn, and Open Business Models Wiki Hive. These ideas have also been discussed at http://solari.com
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