Author Topic: Fairer Solutions to Excess Investor Demand  (Read 82562 times)

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #75 on: August 22, 2013, 01:16:24 PM »
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Maybe it isn't a loan but a cookie.  We're all kids fighting over cookies.  How do you fairly divide a cookie four ways (as an arbitrary amount example)?

America does not operate on the cookie principle.  Maybe socialists do.   In your cookie example, nobody had to pay for it, and you're dealing with little children.  Gimmie, gimmie, gimmie.

By that (and similar) logic, the 100 acres of land next to me should have been split up into 0.25 acre sections to allow more people to become landowners.  Whoever bought so much land at once must be evil.  No, in reality the seller carved up the land to maximize his profit.  If someone wanted the homestead they paid more per acre for it.  Maybe some hippie wanted the untillable section of trees.  Everyone had an equal chance to buy that land, but market forces determined how it was split up and what price was paid.

One you remove those market forces, nothing's left but to start talking about right&wrong, fair&unfair, and now you're in a mess.  Welcome to the mess.

Where did this idea come from that the more PEOPLE involved in a loan the better?  That 10,000x$25 is better than 1,000x$250?  I see all kinds of ideas from people trying to make that programatically happen without questioning that underlying premise.  You know, I always assumed finance people leaned to the right politically.  I'm really starting to question that now.
« Last Edit: August 22, 2013, 01:18:33 PM by core »

storm

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Re: Fairer Solutions to Excess Investor Demand
« Reply #76 on: August 22, 2013, 01:33:49 PM »
This 'fair' topic has bothered me since I started reading about it. 

It isn’t fair because the institutional investors most likely have the resources to develop software to access the API.  They probably have a computer programmer on the payroll or at least one on retainer.  If I understand correctly, you have to have permission from LC to purchase notes through the API.  I would be interested to know if they have or would give permission to small individual investors.

The first-come, first-serve method is fair I suppose, but when large group of people are involved, it becomes unsustainable.  The last few years, we’ve heard about people trampled to death on Black Friday to buy the after-Thanksgiving bargains.  In the online realm, there is a website called woot.com that would offer surprise grab bags for $8 with the contents often worth more than that.  The website’s server(s) would often crash because of the immense traffic it would generate.  Needless to say, downtime is not good for an ecommerce site.  To slow things down and give more people a chance, they made customers play a game or solve a puzzle to get a chance to buy the grab bag.  (Amazon bought them out a year or two ago, and “bags of crap” are very few and far between.)  American Express’ My Wishlist was similar where they were giving away cars and whatnot plus valuable coupons.  They had their own computer problems.  And there again, institutions have the resources to buy a big dedicated pipe to the Internet, and when milliseconds count, they are going to have an unfair advantage over DSL or cable Internet users.

I haven’t seen the numbers, but I bet the small investors are investing a tiny fraction of what the institutional investors are putting in currently.  At the end of the day, giving small investors a fair to slight advantage to invest is not going to put much of a dent in the institutional investments.

storm

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Re: Fairer Solutions to Excess Investor Demand
« Reply #77 on: August 22, 2013, 01:42:34 PM »
Where did this idea come from that the more PEOPLE involved in a loan the better?

First, it was to give the little guy a chance to invest in an instrument that they wouldn't otherwise have access to.  In return, borrowers pay a lower interest rate than what the banks offer.  Second, to diversify risk among many loans.  We've lost our way somehow.

GS

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Re: Fairer Solutions to Excess Investor Demand
« Reply #78 on: August 22, 2013, 01:50:13 PM »
It's not about socialism.  Not even close.  Most people are saying a system that gives large investors access to special investment tools that can be used to run over the smaller investors is not "fair"... I'm fine with LC giving their larger users API and the whole loan program.  But, some compromise should be reached to prevent the smaller investors from getting run out of the market. 

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #79 on: August 22, 2013, 01:59:52 PM »
(Amazon bought them out a year or two ago, and “bags of crap” are very few and far between.)

Hey, there's a fun idea.  Maybe LC could offer "bags of crap" if you have a limit order entered ahead of time.  Pay your $250 or whatever and you get a bag of crap.  This happens before the loans are published.


At the end of the day, giving small investors a fair to slight advantage to invest is not going to put much of a dent in the institutional investments.

Maybe it won't.  But how does it increase revenues for LC or decrease their operating expenses?  How does it increase anyone's returns taken as a whole?  What financial sense does it make?

Second, to diversify risk among many loans.  We've lost our way somehow.

That's a little backwards.  I asked why folks automatically thought more investors per loan was better, and you responded with why more notes per investor (diversification) was better.  Not directly related, at least not once the numbers are sufficiently large.
« Last Edit: August 22, 2013, 02:03:54 PM by core »

investforfreedom

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Re: Fairer Solutions to Excess Investor Demand
« Reply #80 on: August 22, 2013, 02:10:06 PM »
Economics 101 tells us that:

(1) Free unregulated market has a tendency for monopolies, or oligopolies (such as OPEC).  And we all know what monopolies or oligopolies can do to squeeze out the smaller competitors.  We are the small competitors in this p2p business, my friend.

(2) Economies of scale: Larger entities are more effective in marshaling their resources to compete in a free market economy.  Those with deep pockets can afford to have the fastest APIs and what not to grab the best loans before the rest of us do. 

(3) Free market has trouble dealing with actions that benefit the individuals but  collectively produce unintended consequences:

(a) Positive externalities.  If your neighbors keep their houses and lawns well maintained, it could elevate the resale value of your house, not just that of their houses.  There are things you don't do but you still benefit from through the actions of others.

(b) Negative externalities.  People have the right to get a driver's license and drive. That benefits the individual.  But if everybody gets their cars on the road at the same time, we have traffic congestion, increased risks of accidents and casualties, noise and air pollution, and so on.  That is no good for everyone from a collective point of view.

The question is not America v. the socialists. The question has to do with doing the right thing and ensuring that not only the big players dominate the game.  Even if I had $10 million dollars invested, I would still say the same thing. 



Quote
Maybe it isn't a loan but a cookie.  We're all kids fighting over cookies.  How do you fairly divide a cookie four ways (as an arbitrary amount example)?

America does not operate on the cookie principle.  Maybe socialists do.   In your cookie example, nobody had to pay for it, and you're dealing with little children.  Gimmie, gimmie, gimmie.

By that (and similar) logic, the 100 acres of land next to me should have been split up into 0.25 acre sections to allow more people to become landowners.  Whoever bought so much land at once must be evil.  No, in reality the seller carved up the land to maximize his profit.  If someone wanted the homestead they paid more per acre for it.  Maybe some hippie wanted the untillable section of trees.  Everyone had an equal chance to buy that land, but market forces determined how it was split up and what price was paid.

One you remove those market forces, nothing's left but to start talking about right&wrong, fair&unfair, and now you're in a mess.  Welcome to the mess.

Where did this idea come from that the more PEOPLE involved in a loan the better?  That 10,000x$25 is better than 1,000x$250?  I see all kinds of ideas from people trying to make that programatically happen without questioning that underlying premise.  You know, I always assumed finance people leaned to the right politically.  I'm really starting to question that now.
« Last Edit: August 22, 2013, 05:31:38 PM by investforfreedom »

rlv99

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Re: Fairer Solutions to Excess Investor Demand
« Reply #81 on: August 22, 2013, 03:06:39 PM »
I would be interested to know if they have or would give permission to small individual investors.

Yes, they do.

storm

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Re: Fairer Solutions to Excess Investor Demand
« Reply #82 on: August 22, 2013, 04:00:48 PM »
At the end of the day, giving small investors a fair to slight advantage to invest is not going to put much of a dent in the institutional investments.

Maybe it won't.  But how does it increase revenues for LC or decrease their operating expenses?  How does it increase anyone's returns taken as a whole?  What financial sense does it make?

Second, to diversify risk among many loans.  We've lost our way somehow.

That's a little backwards.  I asked why folks automatically thought more investors per loan was better, and you responded with why more notes per investor (diversification) was better.  Not directly related, at least not once the numbers are sufficiently large.

Woo wee, a few more bits a processor in a computer in far off datacenter has to process.  It is not like some accountant is doing long division and filling out a ledger with a quill and ink bottle.  The operating costs for splitting up a loan payment between two or 2,000 investors are negligible in this day and age.  LC still gets their origination fee from the borrower and 1% from the investor(s), so revenues are the same either way.

Look, I’ve been doing this since ‘08.  I didn’t come up with the idea.  I just thought it was a good idea, and it makes me feel good to help my peers get out of debt.  There are businesses that solely exist to make money.  And then there are businesses that want to make money, but also serve a need.  The latter organizations are infinitely more valuable than their balance sheet with happy employees and happy customers.  If Lending Club wants to shut out all the small investors (and referrals) and join the ranks of Lending Tree, Quicken Loans, E-Loan, and the stodgy B&M banks then so be it.  I will warn that by doing nothing at all and allowing the fat cats to dominate the platform is effectively the same.

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“A person may cause evil to others not only by his actions but by his inaction, and in either case he is justly accountable to them for the injury.”
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rawraw

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Re: Fairer Solutions to Excess Investor Demand
« Reply #83 on: August 22, 2013, 05:49:23 PM »
The poor platform is doing so well and yet we are so upset with them.  Things can be improved of course, but I really think to be taken seriously people should be a bit more fair in their dealings with Lending Club:

Quote
Institutional investors are taking notice. The largest single investor on the site has put in $60m. Family offices and credit funds are among those to have invested; Lending Club even has a bank on the books. Mr Laplanche says he was recently approached by a sovereign-wealth fund that wanted to put $250m onto the platform to fund loans. (He asked them to spread the investment over a two-year period, so that it did not account for too big a proportion of the site's origination capacity.)  It helps that the firm's board of directors features heavy hitters like John Mack, once of Morgan Stanley, and Larry Summers, once of the Treasury. This is a long way from the garage start-up.

Damned if they do, damned if they don't.  Just give them time -- especially since many of you want to invest in non-homogeneous notes (for some unknown reason).  I'll be happy when most of the money is pouring into a much more likely train wreck, leaving me with plenty of homogeneous credits  to choose from :)

core

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Re: Fairer Solutions to Excess Investor Demand
« Reply #84 on: August 22, 2013, 06:56:42 PM »
Things can be improved of course, but I really think to be taken seriously people should be a bit more fair in their dealings with Lending Club:

I don't care if Lending Club takes me seriously or not.  Ditto with any posts I make here.  Someone taking me seriously isn't going to add money to my bank account.  Maybe if my returns decrease I'll start "seriously" complaining.  You know something is seriously wrong when the even-tempered people are complaining about the volume of complainers.  Followed of course (you saw it coming) by complaints about the people complaining about the complainers.

Damned if they do, damned if they don't.  Just give them time -- especially since many of you want to invest in non-homogeneous notes (for some unknown reason).

Forgive my ignorance, but what in the heck is a homogenized note???  The only thing "uniform" (if that's the definition at work here) about all these notes is that each one is a different risk.  The fun of the game is make sure you're not the one holding the bag when each one defaults.  If things were truly homogenized there wouldn't be any decent returns to be made because the risk would be the same and predictable.

cfb

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Re: Fairer Solutions to Excess Investor Demand
« Reply #85 on: August 22, 2013, 07:12:56 PM »
Despite the mailers and advertising by LC, most normal people still don't know about P2P.  Personally, I don't think the concept has even saturated but a small percentage of the population.  Even if they are aware of it doesn't mean that they need a loan today.  They may next year, but not today.

Pretty good point.  I'm a fairly well educated investment guy and I actually don't recall hearing much of anything about LC as either a lender or borrower.  I probably saw something about it a few times but it never caught my attention.  I was actually looking at an unrelated site when someone gave Lending Club as a joke answer to the question "Where can I put some money for a few months where it'll be completely safe and earn a high rate of return".  It piqued my interest so I checked it out.

berniemadeoff

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Re: Fairer Solutions to Excess Investor Demand
« Reply #86 on: August 23, 2013, 12:37:21 AM »
Quote
Maybe it isn't a loan but a cookie.  We're all kids fighting over cookies.  How do you fairly divide a cookie four ways (as an arbitrary amount example)?

America does not operate on the cookie principle.  Maybe socialists do.   In your cookie example, nobody had to pay for it, and you're dealing with little children.  Gimmie, gimmie, gimmie.

By that (and similar) logic, the 100 acres of land next to me should have been split up into 0.25 acre sections to allow more people to become landowners.  Whoever bought so much land at once must be evil.  No, in reality the seller carved up the land to maximize his profit.  If someone wanted the homestead they paid more per acre for it.  Maybe some hippie wanted the untillable section of trees.  Everyone had an equal chance to buy that land, but market forces determined how it was split up and what price was paid.

One you remove those market forces, nothing's left but to start talking about right&wrong, fair&unfair, and now you're in a mess.  Welcome to the mess.

Where did this idea come from that the more PEOPLE involved in a loan the better?  That 10,000x$25 is better than 1,000x$250?  I see all kinds of ideas from people trying to make that programatically happen without questioning that underlying premise.  You know, I always assumed finance people leaned to the right politically.  I'm really starting to question that now.

This is not about having a bazillion owners of one note, it's about giving investors a fair shot of getting the notes they want.  Some people here believe they are God's gift to factor modeling when it comes to selecting notes that won't default.  I'm not that smart. Using some help, I just buy whatever the historical data tells me provides higher returns.  Yeah, I know AnilG scoffs at this and thinks I'm a stupid lemming, but this is how most people do it.  This leads to excessive demand for the same short supply of notes. LC has devised a flawed process to allocate these hot loans and clearly needs to come up with a better method. 

Maybe they use a lottery, round robin, reverse dutch auction or whatever... I don't think it matters.  As long as they fix this before I get nothing but "loan fully funded" messages from IR, I will be happy.

 

ThinleyWangchuk

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Re: Fairer Solutions to Excess Investor Demand
« Reply #87 on: August 23, 2013, 12:56:48 AM »
Also according to lendingclub, institutions get to purchase whole notes prior to it being released on the platform to individual investors, thus giving them a competitive advantage by allowing the to choose the loans with the best risk/reward. I love front running ::)

AnilG

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Re: Fairer Solutions to Excess Investor Demand
« Reply #88 on: August 23, 2013, 12:57:46 AM »
Where did this came from? This appears to be an unfair and personal attack. I don't believe ever called anyone stupid lemming.


Yeah, I know AnilG scoffs at this and thinks I'm a stupid lemming, but this is how most people do it.

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berniemadeoff

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Re: Fairer Solutions to Excess Investor Demand
« Reply #89 on: August 23, 2013, 01:10:42 AM »
Where did this came from? This appears to be an unfair and personal attack. I don't believe ever called anyone stupid lemming.


Yeah, I know AnilG scoffs at this and thinks I'm a stupid lemming, but this is how most people do it.


This was meant to be a compliment