Author Topic: Fairer Solutions to Excess Investor Demand  (Read 82570 times)

investforfreedom

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Re: Fairer Solutions to Perpetual Excess Investor Demand
« Reply #15 on: August 19, 2013, 01:47:45 AM »

Why the assumption of "Perpetual Excess Investor Demand" in the first place? Perpetual? Really? Seems like a rather bold assumption. What is your definition of perpetual, I hasten to ask?


I agree with DanB on this occasion, even though I disagree with him on previous ones.  I don't believe we can make the assumption that the excess investor demand is "perpetual."

First, there is certainly excess investor demand on loans with higher risks right now.  And we also see an increase in demand for lower risk loans, but it is much less dramatic.  There is still an abundance of these lower risk loans, especially on the Prosper platform, i. e., AA and A loans.

Second, if this new industry is as "disruptive" as it is claimed to be (by those speakers at the LendIt conference), I surmise that the traditional banks and credit card companies will be forced to compete by lowering their rates at some point in the future.  This will in turn push down the borrowing rates offered by the lending platforms such as LC and Prosper.  In fact, we have already seen the borrowing rates on these two platforms come down in the past year or so, much to the chagrin of those of us who want to maintain higher double-digit returns.  Rates could come down to a point where it may no longer be as attractive as they still are now.  Investor demand could soften as a result.

(C) On the other hand, if investor demand tempts the two platforms to lower the underwriting standards in order to originate more loans, it would only lead to higher rates of default.  (And it seems that there have been more loans with "major delinquencies" and "public records" coming onto the LC platforms after they changed things at the end of last year. How these loans pan out remains to be seen.)  And higher default rates will dampen investor demand eventually. 

However you look at it, the market will find some kind of supply and demand equilibrium somehow.  Excess investor demand is not perpetual. 

The way I see it, rates and ROI will come down regardless of whether a fair mechanism is in place--even though as a small investor I am all for a fair solution.


« Last Edit: August 19, 2013, 01:50:18 AM by investforfreedom »

DanB

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Re: Fairer Solutions to Perpetual Excess Investor Demand
« Reply #16 on: August 19, 2013, 03:18:32 AM »
Brycemason..............As I told Peter some months ago, I'm not commenting on the "forum" anymore but I'll make an exception today.

Why not?

Because Peter & I have rather different views on the functions, general comportment & acceptable tone of a "forum" & this is his forum. But despite our differences on this & other topics, I consider Peter to be a friend & as such, have no desire to make our differences on a "forum" some major point of contention. Therefore I voluntarily decided to not be a "regular" poster on the forum & only post when I feel something that hasn't already been mentioned really ought to be mentioned (like tonight & a few weeks ago with Core's locked account situation). This works great for me & of course I still post regularly on the blog itself...............where I feel no constraints & can better accomplish what I want to accomplish.

brycemason

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Re: Fairer Solutions to Excess Investor Demand
« Reply #17 on: August 19, 2013, 10:12:41 AM »
I've updated the title to remove the word perpetual. I guess I have a flair for the dramatic. It was immaterial to the discussion points anyway.

RollWave

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Re: Fairer Solutions to Perpetual Excess Investor Demand
« Reply #18 on: August 19, 2013, 10:23:47 AM »
So if one were to accept the flow of the conversation here, I must be getting totally crap loan choices.

yes, that's the jist.  and without using an automated system, an investor may not even realize that he is only looking at a small fraction of loans as compared to other users.

--

I agree with others who have suggested some variant of the 'limit x% of each loan to $y max investment size per user for z hours'.  These variables are somewhat arbitrary, but it's probably the best way to ensure that the maximum investor pool has access to the maximum number of loan offerings.

Rob L

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Re: Fairer Solutions to Perpetual Excess Investor Demand
« Reply #19 on: August 19, 2013, 10:39:21 AM »
The first order of business is to make LC aware that the 75% rule is not working as they initially intended (promised), and find out if they are interested in fixing it.

I think we are having this discussion because we believe the 75% (70%?) rule as it was envisioned by LC does not work. LC may disagree, but several ways around this rule for larger investors have been discussed. Many of us believe these methods and perhaps others we haven't imagined are being used today to skirt the rule. My understanding is that LC put this rule in place specifically for the benefit of the small retail investor in the spirit of compromise at the same time they implemented the whole loans program for the benefit of large investors. All we are asking LC to do is to fix the 75% rule to prevent its circumvention and abuse by larger investors. We are not asking for anything new; only something that works as LC intended in the first place.

LC is drinking from a fire hose of investor demand and growing like crazy. There's that IPO thing out there and I agree that if anything is to be done LC must see it as very low risk and not a chance to mess up the good thing they have going. Only if LC is even willing to engage in a discussion concerning the broken 75% rule need we take the next step and propose solutions. I do believe that a few simple changes as suggested in this thread and perhaps others, would go a long way toward restoring the operation of the rule as LC intended in the first place.


DanB

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Re: Fairer Solutions to Excess Investor Demand
« Reply #20 on: August 19, 2013, 10:46:09 AM »
Peter.................Isn't it a code of conduct violation for a person (Rollwave) to use the "quote" function & then delete a  word  within that quote in order to change the meaning of that quote?? Or is that acceptable behavior around here?


SBryantMS

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Re: Fairer Solutions to Excess Investor Demand
« Reply #21 on: August 19, 2013, 10:55:32 AM »
Peter.................Isn't it a code of conduct violation for a person (Rollwave) to use the "quote" function & then delete a  word  within that quote in order to change the meaning of that quote?? Or is that acceptable behavior around here?



+1

Zach

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Re: Fairer Solutions to Excess Investor Demand
« Reply #22 on: August 19, 2013, 01:21:40 PM »
Peter.................Isn't it a code of conduct violation for a person (Rollwave) to use the "quote" function & then delete a  word  within that quote in order to change the meaning of that quote?? Or is that acceptable behavior around here?



DanB, you are correct that it would be acceptable usage only to quote a user with no modifications of any kind to their text. I have sent a reminder email to Rollwave with this information as well.

wiseclerk_com

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Re: Fairer Solutions to Excess Investor Demand
« Reply #23 on: August 19, 2013, 04:25:12 PM »
Other p2p lending services have used waiting queues for automatic bidding profiles. Once a bid was made the lender moves to back of the queue again. (example Isepankur.com, and I believe their also was a UK one).
Or broader if you dont want to use the word "queue" then call it first in first out. Of course that makes only sense if all automatic bidding by standing orders is applied before any individual bids.
I publish the http://www.p2p-banking.com blog

kitono

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Re: Fairer Solutions to Excess Investor Demand
« Reply #24 on: August 19, 2013, 05:31:26 PM »
I have a simple yet effective solution.
Why not simply allow everyone to make purchases on a new loan within 6 hours (or however long it takes for credit/income verifications/etc to process). These people can say how much they're willing to put into the loan in increments of $25 including institutional investors.
At the end of 6 hours, the loan is funded starting with the smallest increments at a time and then works its way up to larger investors.
For Example:
Retail Investor A $25
Retail Investor B $50
Institution C $3000
Institution D $5000

Say the new Loan is $3000 then:
First Round $25:
ABCD
Money Left - $2900
2nd Round $25:
BCD
Money Left - $2825
X Round - $2825 then becomes an even split between the remaining two largest investors, priority for that remaining $25 can go to whichever of the two largest investors purchased first.

This way, LC Keeps all its investors and it really is in their best interest to "force" diversification for a less risky portfolio and through that, better avg returns and higher PR/Reviews
« Last Edit: August 19, 2013, 05:37:49 PM by kitono »

yojoakak

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Re: Fairer Solutions to Excess Investor Demand
« Reply #25 on: August 19, 2013, 05:31:38 PM »
The only fair way would to be some kind of auction. Something like...

LendingClub sets an initial rate for a loan. If that loan fills up before you get a piece, you can offer a lower rate.

Once the loan gets filled up the borrower can accept the loan at any time, or wait the full 2 weeks to see how low the rate will go.

Maybe each note would gets its own rate, but the borrower might just see an average rate.

kitono

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Re: Fairer Solutions to Excess Investor Demand
« Reply #26 on: August 19, 2013, 05:39:21 PM »
Yojak that method proved to fail a few years ago, no? I think I recall people outbidding each other to the point of losing money.

AnilG

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Re: Fairer Solutions to Excess Investor Demand
« Reply #27 on: August 19, 2013, 05:53:24 PM »
Yep, Prosper 1.0 used auction-style and failed miserably during the 2008 downturn mostly due to lack of risk assessment and management capability of retail lenders on the platform. A better alternative will be Zopa style.

Yojak that method proved to fail a few years ago, no? I think I recall people outbidding each other to the point of losing money.
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core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #28 on: August 19, 2013, 05:57:52 PM »
Say the new Loan is $3000 then:
First Round $25:
ABCD
Money Left - $2900

If you did this then the institutions would take their bat & ball and go home.  LC is not going to do this because of that alone.  It would also affect non-institutional individuals with medium to large balances... it would be difficult if not impossible to get large amounts invested in any reasonable time frame.

The rest of this isn't directed at you, Kitono.  But I was just noticing while reading all these...

Some of the posts in these threads the past few days have sounded alarmingly close to socialism.  Why does 'fair' have to mean "everyone gets their 'fair share' of notes"?  Where else have we heard the phrase 'fair share' recently?  Fair means a level playing field, it does not mean rationing and bread lines to make sure everybody gets a little something.  That didn't work out too well for the commies.


GS

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Re: Fairer Solutions to Excess Investor Demand
« Reply #29 on: August 19, 2013, 06:14:07 PM »
Kitono,

That's a really cool idea, but LC has spent the last year enticing large institutional investors to join, and given them special tools that allow them to instantly grab the lion's share of any note they want within seconds of being posted, as well setting aside whole loans for them to purchase.  Some people believe it is the influx of cash from these institutions that is making LC profitable, and LC is not likely to "level the playing field" to the point of giving individual investors anywhere near the same access that institutional investors have.  As much as I would like to see a solution like what you proposed, the reality is that anything that doesn't allow the institutions to grab a big chunk of any loan they want isn't going to fly.

[I didn't see Core's response when I started typing, but the same sentiment.  LC will not do anything to make their institutional clients doubt LC's commitment to tilting the field in their favor.  I'm just asking for less tilt.]
« Last Edit: August 19, 2013, 06:21:16 PM by GS »