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Post by Financial Thing on Apr 11, 2016 8:14:13 GMT
You may find this Bloomberg article of interest, similarities to the mortgage crisis of 2008 (smaller scale obv.). Wall St. smells profit chance, credit agencies misrepresent the risk / credit ratings to entice investors, investors getting burned, all hell breaks loose. link
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Liz
Member of DD Central
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Post by Liz on Apr 11, 2016 8:33:34 GMT
You may find this Bloomberg article of interest, similarities to the mortgage crisis of 2008 (smaller scale obv.). Wall St. smells profit chance, credit agencies misrepresent the risk / credit ratings to entice investors, investors getting burned, all hell breaks loose. link
Oh gawd!
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Post by meledor on Apr 11, 2016 14:43:26 GMT
Somewhere along the way this ceased to be P2P; perhaps nobody noticed. The whole meaning of P2P is that you haven't got a platform in the middle that is engaged in leverage or financial engineering such as securitisations. Properly done there is nothing wrong with securitisations in the right situations, but P2P is not one of them. I don't know the details here but it looks like institutions were happy to pony up the money for the loans to be written on the basis of originate to distribute. When you know you are going to quickly sell on your exposure then the standard of creditworthiness checks is liable to slip as we discovered in 2008. This is reinforced by the fact that loan volume (rather than profit) continues to be the metric that everyone seems to use to gauge the success of a P2P platform.
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skippyonspeed
Some people think I'm a little bit crazy, but I know my mind's not hazy
Posts: 787 
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Post by skippyonspeed on Apr 11, 2016 15:16:07 GMT
To quote Dad's Army..........."We're all doooooomed!"
Seriously though, I put on a par with "free" personal banking.....but much better, or, should I say interesting!!
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Post by propman on Apr 11, 2016 15:39:14 GMT
Before we have a go at the evil institutions, isn't this just the institutional equivalent of flipping?
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Post by lynnanthony on Apr 11, 2016 15:41:10 GMT
Somewhere along the way this ceased to be P2P; perhaps nobody noticed. You echo my thoughts. When I first got involved as a lender a few years ago there were just a lender a borrower and a website. I loved the simplicity. Then we got introducers, sponsors, underwriters, institutions. More and more people with their fingers in the pie. P2P / P2B no longer seem appropriate descriptions.
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Post by meledor on Apr 11, 2016 16:59:40 GMT
Before we have a go at the evil institutions, isn't this just the institutional equivalent of flipping? That's one way of looking at it, but you would have to ask why could they could not do their flipping on the platform. With the securitisation there is the risk of the institutions benefitting from asymmetric information due to its close relationship with the platform in setting up the securitisation, and the danger that if originate to distribute is the model then credit assessment might not be as thorough, as well as the difficulty of some quite complex structures with an over reliance on credit ratings which for me all leads to real concerns for the P2P brand image.
I'm certainly not knocking the financial institutions - I've worked for a few in my time and been involved in one or two securitisations (which work best when seen as a means of securing cheaper funding by issuing more highly rated bonds than would otherwise be the case rather than as a means of removing exposure to the underlying assets) but P2P clearly set out to be different to the banks but now seems to want to be the same. In some ways I'm reminded of the ending of Animal Farm when the rest of the animals could not tell the difference between the pigs and humans.
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Post by meledor on Apr 19, 2016 8:36:32 GMT
Somewhere along the way this ceased to be P2P; perhaps nobody noticed. The whole meaning of P2P is that you haven't got a platform in the middle that is engaged in leverage or financial engineering such as securitisations. Properly done there is nothing wrong with securitisations in the right situations, but P2P is not one of them. I don't know the details here but it looks like institutions were happy to pony up the money for the loans to be written on the basis of originate to distribute. When you know you are going to quickly sell on your exposure then the standard of creditworthiness checks is liable to slip as we discovered in 2008. This is reinforced by the fact that loan volume (rather than profit) continues to be the metric that everyone seems to use to gauge the success of a P2P platform.
For an alternative perspective see Geoff Miller's piece:
www.altfi.com/article/1893_new_model_for_less_exuberant_times
Geoff sees alternative finance as having reached an "inflexion point" and a balance sheet model as a solution to the problems of funding as the sector grows. Banks would provide funding to platforms which "could be achieved by writing loans on balance sheet, rather than on behalf of lenders, and then bringing in external investors to the extent that demand allows. Retaining at least part of every loan on balance sheet would deal with the “skin in the game” criticism continually thrown at the sector."
However the success of P2P has been based on platform trust and transparency. If we move to a balance sheet model we could have a situation where the platform is retained as a shop window but the best deals are done at the trade counter round the back and then that trust is going to disappear.
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Post by wiseclerk on Apr 19, 2016 9:29:15 GMT
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Post by wiseclerk on Apr 19, 2016 10:27:18 GMT
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ilmoro
Member of DD Central
'Wondering which of the bu***rs to blame, and watching for pigs on the wing.' - Pink Floyd
Posts: 10,870
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Post by ilmoro on Apr 19, 2016 10:47:49 GMT
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Post by Financial Thing on Apr 19, 2016 13:07:08 GMT
Somewhere along the way this ceased to be P2P; perhaps nobody noticed. The whole meaning of P2P is that you haven't got a platform in the middle that is engaged in leverage or financial engineering such as securitisations. Properly done there is nothing wrong with securitisations in the right situations, but P2P is not one of them. I don't know the details here but it looks like institutions were happy to pony up the money for the loans to be written on the basis of originate to distribute. When you know you are going to quickly sell on your exposure then the standard of creditworthiness checks is liable to slip as we discovered in 2008. This is reinforced by the fact that loan volume (rather than profit) continues to be the metric that everyone seems to use to gauge the success of a P2P platform.
For an alternative perspective see Geoff Miller's piece:
www.altfi.com/article/1893_new_model_for_less_exuberant_times
Geoff sees alternative finance as having reached an "inflexion point" and a balance sheet model as a solution to the problems of funding as the sector grows. Banks would provide funding to platforms which "could be achieved by writing loans on balance sheet, rather than on behalf of lenders, and then bringing in external investors to the extent that demand allows. Retaining at least part of every loan on balance sheet would deal with the “skin in the game” criticism continually thrown at the sector."
However the success of P2P has been based on platform trust and transparency. If we move to a balance sheet model we could have a situation where the platform is retained as a shop window but the best deals are done at the trade counter round the back and then that trust is going to disappear.
All of this is continue to play out favorably while the stock markets continue to prosper and complacency presides over logical thinking. But when things take a turn for the worse (a stock market correction), only then will we see these unsecured loan defaults rise and see if p2p can stand the true test.
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