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.