Recently the SEC sent a cease and desist order to Prosper.com, an online person-to-person lending marketplace. Although they are not the first, and such an order does not mean they have to terminate their service, I have to agree with Jim Bruene:
I find it a bit ironic that a $100-million self-regulating and relatively transparent marketplace receives heavy-handed treatment while multi-trillion dollar financial products grew relatively unchecked in recent years.
What’s interesting to me is to think whether a transparent Web-based community of investors can be a better mechanism to protect investors from fraudulent activities than an external central authority staffed with a limited number of people who are can’t be up-to-date on all the latest developments in financial innovation, in this case, direct person-to-person lending.
If you know that most of the money we use is the credit extended to us by banks, this idea may have bigger consequences: one might wonder if a Web-based decentralized monetary system where creditworthiness is determined in part or entirely by parties to the transaction themselves is not a better mechanism for monetary mass optimization than a central banking system.
you do raise an interesting point here. Something I have learned, at much cost, is that the regulators do not offer protection to consumers. What they do is institute approvals of processes. By that I mean they will agree that Company A has the appropriate processes in place to satisfy them that consumers will be adequately protected.
There might be an opportunity to incorporate p2p as part of the process to satisfy regulators that consumers can be better protected if p2p is part of the process.
you do raise an interesting point here. Something I have learned, at much cost, is that the regulators do not offer protection to consumers. What they do is institute approvals of processes. By that I mean they will agree that Company A has the appropriate processes in place to satisfy them that consumers will be adequately protected.
There might be an opportunity to incorporate p2p as part of the process to satisfy regulators that consumers can be better protected if p2p is part of the process.