yangmills
Member of DD Central
Posts: 83
Likes: 494
|
Post by yangmills on Oct 29, 2017 9:52:33 GMT
At the most fundamental level, the par-only SM idea rests on a bogus idea that par is somehow special or "fair". Given the loan is the sum of it's projected coupon cashflows, discounted at a risky-rate, then there is no reason to believe the loan should be at par. Only the trivial outcome of a non-default redemption is the loan clearly worth par. Prior to that either when issued or during it's life, there is no magical reason to believe the discount rate happens to equal the projection rate. It seems to me that the pro par SM argument split into two categories. 1. That variable pricing is somehow 'complicated'. I just think that people have to accept that to invest in high-risk loans, you should be able to do basic math. Understanding percentages is probably enough but it would only take a very short amount of time to understand compouding/discounting, the bond price-yield relationship, how calculate total returns etc. I really can't see any complexity. 2. That a par SM, because there are no "flippers", is less exploitable. This misses the fact that the par-SM is in itself highly exploitable. This quote captures it ... If there was discounting it would be impossible to sell a loan close to term without offering a discount. Everyone will try and queue jump in front of everyone else. It doesn't make it easier. I've also sold loads on Lendy which operates a similar market. Of course you should probably have to take a discount. A par SM will clearly result in the ability to strip off all the coupons while leaving the residual buyer with all the default risk. I have to wonder whether a number lenders favour keeping the par-only SM because they are trying to maintain this rather nice advantage. Now, I'm all in favour of exploiting the ignorance of others. But let's at least admit it and not pretend that par SMs are fair and variable pricing is not. My experience, as a part of a syndicate with seven figure sums on FC and SS over 2014- early 17, was that SS was far easier to exploit because of it's par SM. The value of "flipping" on FC is over exaggerated since it's not scaleable to relevant amounts.
|
|
greeb
Member of DD Central
Posts: 56
Likes: 55
|
Post by greeb on Oct 29, 2017 9:56:55 GMT
Yourleading defence of the status quo is going to cost people money if you keep this up Archie.have you looked at how slowly the queues are moving these days. Selling is so slow that the idea that you sell all and end up with nothing to buy is very mistaken. Completely disagree that the change in the Sm has not harmed MT reputation. Your selling at a discount is going to cost more. It allows people to jump the queue. It the makes people sell at a discount to try to jump others in the queue which in turn makes more sell at a bigger discount. Only to find out all is well and you have to buy back at par at a cost. You are also encouraging people who are not aware of possible problems to buy at a discount because you want to get out because you have inside information that they don't, leaving them with a possible default. But that's ok because you bought in the beginning took the interest made a great profit and left someone else holding the default. missed the point about costing people money I m afraid. Without a functioning SM confidence disappears with ability to originate and generate income and platform heads south, its not the trading aspect which simply helps people to sell should they so wish. Platform failure wholly involuntary.
|
|
greeb
Member of DD Central
Posts: 56
Likes: 55
|
Post by greeb on Oct 29, 2017 9:59:36 GMT
Agreed, let's keep the debate to the points rather than the people.
sorry Archie, point taken - 3 loans in default and stuck in massive sm queues has got me a bit cross.
|
|
archie
Posts: 1,839
Likes: 1,842
|
Post by archie on Oct 29, 2017 10:02:24 GMT
At the most fundamental level, the par-only SM idea rests on a bogus idea that par is somehow special or "fair". Given the loan is the sum of it's projected coupon cashflows, discounted at a risky-rate, then there is no reason to believe the loan should be at par. Only the trivial outcome of a non-default redemption is the loan clearly worth par. Prior to that either when issued or during it's life, there is no magical reason to believe the discount rate happens to equal the projection rate. It seems to me that the pro par SM argument split into two categories. 1. That variable pricing is somehow 'complicated'. I just think that people have to accept that to invest in high-risk loans, you should be able to do basic math. Understanding percentages is probably enough but it would only take a very short amount of time to understand compouding/discounting, the bond price-yield relationship, how calculate total returns etc. I really can't see any complexity. 2. That a par SM, because there are no "flippers", is less exploitable. This misses the fact that the par-SM is in itself highly exploitable. This quote captures it ... If there was discounting it would be impossible to sell a loan close to term without offering a discount. Everyone will try and queue jump in front of everyone else. It doesn't make it easier. I've also sold loads on Lendy which operates a similar market. Of course you should probably have to take a discount. A par SM will clearly result in the ability to strip off all the coupons while leaving the residual buyer with all the default risk. I have to wonder whether a number lenders favour keeping the par-only SM because they are trying to maintain this rather nice advantage. Now, I'm all in favour of exploiting the ignorance of others. But let's at least admit it and not pretend that par SMs are fair and variable pricing is not. My experience, as a part of a syndicate with seven figure sums on FC and SS over 2014- early 17, was that SS was far easier to exploit because of it's par SM. The value of "flipping" on FC is over exaggerated since it's not scaleable to relevant amounts. There are plenty of platforms. Why try to eliminate one lender option? I haven't tried to argue for change on any of the platforms that offer discounting. I just invest a lot less per loan on those.
|
|
|
Post by GSV3MIaC on Oct 29, 2017 10:05:00 GMT
A functioning SM is definitely good for the platform, but 'size of the for sale queue' is only one measure .. how fast/whether it moves (if you need it to) is definitely at lest equally important. Oh, and a zero size for sale queue is not a measure of a good functional SM, quite the opposite.
Potentially bad news emerging from "the undergrowth" on the L'pool loan has definitely clobbered the SM for this particular one, and with no discounts/premia we will continue to have feast/famine (by loan, and to a lesser extend across the whole platform). Why 'premia' .. 'coz you won't see any popular high rate loans for sale (most of the time) if the best you can sell for is 'par'. Discounts because nobody will buy an unpopular part unless they can't get a bargain.
|
|
elliotn
Member of DD Central
Posts: 3,063
Likes: 2,681
|
Post by elliotn on Oct 29, 2017 10:16:28 GMT
Can this discussion be moved to the discounting thread, too many posts to report, admin
|
|
|
Post by mrclondon on Oct 29, 2017 10:38:35 GMT
I've voted yes.
Recently a large number of connected loans (wind turbines) redeemed on AC leaving me with a substantial pot of funds to reinvest (across multiple platforms). Whilst I was happy to earn the 3.75% QAA rate on the funds prior to reinvestment/withdrawal I put in buy orders at a 1% discount on those loans with the biggest SM overhang. One of those orders was fulfilled within a couple of days, allowing me to earn interest at 8.5% on a substantial block of funds which I have dribbled back into market a few thousand at a time again at a 1% discount (all bought up within a few hours).
I would be quite happy to invest more in the likes of MH, Wigan, Plymouth #1, & Bollington at say a 1% discount and be reasonably comfortable that I could then resell fairly quickly at the same discount.
|
|
mary
Member of DD Central
Posts: 698
Likes: 711
|
Post by mary on Oct 29, 2017 11:02:28 GMT
Given the current SM, anyone can change their vote, but I'm still a No.
Other platforms offer the discounting option, so if that's what you want, invest there. It doesn't follow that all platforms have to be the same, each is trying to carve a profitable niche, and defaults aside, I still like the MT proposition.
|
|
|
Post by Deleted on Oct 29, 2017 11:07:49 GMT
Given the current SM, anyone can change their vote, but I'm still a No. Other platforms offer the discounting option, so if that's what you want, invest there. It doesn't follow that all platforms have to be the same, each is trying to carve a profitable niche, and defaults aside, I still like the MT proposition. This. If you don't like MTs model, invest elsewhere. There are plenty of variable rate SMs to choose from. I like MTs model, so I invest here. Simple isn't it? Stop trying to force a different model down the throat of those who, judging by this poll, are in the majority happy with the current SM mechanics.
|
|
littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,017
Likes: 1,835
|
Post by littleoldlady on Oct 29, 2017 11:41:05 GMT
I've voted yes. Recently a large number of connected loans (wind turbines) redeemed on AC leaving me with a substantial pot of funds to reinvest (across multiple platforms). Whilst I was happy to earn the 3.75% QAA rate on the funds prior to reinvestment/withdrawal I put in buy orders at a 1% discount on those loans with the biggest SM overhang. One of those orders was fulfilled within a couple of days, allowing me to earn interest at 8.5% on a substantial block of funds which I have dribbled back into market a few thousand at a time again at a 1% discount (all bought up within a few hours). I would be quite happy to invest more in the likes of MH, Wigan, Plymouth #1, & Bollington at say a 1% discount and be reasonably comfortable that I could then resell fairly quickly at the same discount. This is AFAICS the only post in support from a potential buyer. Otherwise it seems to be mainly sellers who want to get a lower price! OK sellers who want to sell and are prepared to accept a lower price. There will be times when one wants to sell a 'good' loan for cash flow reasons but I suspect that the majority of cases are when the seller is not confident of the loan and wants to pass it on to someone else to take the risk. There are platforms that do not have a SM at all and in some ways they are the better for it as lenders know they will have to hold to term and make a decision to invest or not accordingly.
|
|
yangmills
Member of DD Central
Posts: 83
Likes: 494
|
Post by yangmills on Oct 29, 2017 12:04:58 GMT
archie . I'm not really arguing against MT specifically. There is room for different models. It's just that these debates are appearing on a number of threads and the specific arguments used for keeping the par SM pop up each time. The idea that variable pricing creates all complexity just doesn't seem valid. Relative to the complexities involved in good DD, variable pricing is a doddle. The argument that variable pricing will attract "flippers" (like FC); well empirically I just don't see it. I can do a return attribution on my FC investment and see that the returns were driven primarily by stripping cashback and rotating capital quickly (sort of an underwriting strategy). The amount generated by buy low/sell high SM trading was not high and hard to scale to any material level of capital. Most variable SMs are still in practical terms pseudo par-SMs. Because retail lenders continue to view par as somehow fair, nearly all the traded volume on variable SMs goes through close to par. In fact, we exploited this heavily on FC, knowing that even a modest haircut of say 0.25% would trigger heavy buying allowing us to stop-out of poor loans very quickly/cheaply and collect the cashback. Currently most variable SMs are really just a way to maintain liquidity given the natural boom/bust type mentalityof lenders. There remains no real pricing of credit risk, just pricing to liquidity.
|
|
littleoldlady
Member of DD Central
Running down all platforms due to age
Posts: 3,017
Likes: 1,835
|
Post by littleoldlady on Oct 29, 2017 12:25:54 GMT
archie . I'm not really arguing against MT specifically. There is room for different models. It's just that these debates are appearing on a number of threads and the specific arguments used for keeping the par SM pop up each time. The idea that variable pricing creates all complexity just doesn't seem valid. Relative to the complexities involved in good DD, variable pricing is a doddle. The argument that variable pricing will attract "flippers" (like FC); well empirically I just don't see it. I can do a return attribution on my FC investment and see that the returns were driven primarily by stripping cashback and rotating capital quickly (sort of an underwriting strategy). The amount generated by buy low/sell high SM trading was not high and hard to scale to any material level of capital. Most variable SMs are still in practical terms pseudo par-SMs. Because retail lenders continue to view par as somehow fair, nearly all the traded volume on variable SMs goes through close to par. In fact, we exploited this heavily on FC, knowing that even a modest haircut of say 0.25% would trigger heavy buying allowing us to stop-out of poor loans very quickly/cheaply and collect the cashback. Currently most variable SMs are really just a way to maintain liquidity given the natural boom/bust type mentalityof lenders. There remains no real pricing of credit risk, just pricing to liquidity. Don't you have any conscience about exploiting the less well informed?
|
|
johni
Member of DD Central
Posts: 366
Likes: 327
|
Post by johni on Oct 29, 2017 12:31:51 GMT
archie . I'm not really arguing against MT specifically. There is room for different models. It's just that these debates are appearing on a number of threads and the specific arguments used for keeping the par SM pop up each time. The idea that variable pricing creates all complexity just doesn't seem valid. Relative to the complexities involved in good DD, variable pricing is a doddle. The argument that variable pricing will attract "flippers" (like FC); well empirically I just don't see it. I can do a return attribution on my FC investment and see that the returns were driven primarily by stripping cashback and rotating capital quickly (sort of an underwriting strategy). The amount generated by buy low/sell high SM trading was not high and hard to scale to any material level of capital. Most variable SMs are still in practical terms pseudo par-SMs. Because retail lenders continue to view par as somehow fair, nearly all the traded volume on variable SMs goes through close to par. In fact, we exploited this heavily on FC, knowing that even a modest haircut of say 0.25% would trigger heavy buying allowing us to stop-out of poor loans very quickly/cheaply and collect the cashback. Currently most variable SMs are really just a way to maintain liquidity given the natural boom/bust type mentalityof lenders. There remains no real pricing of credit risk, just pricing to liquidity. This is actually only mentioned by people wanting variable pricing to be able to pass off duff loans to some other unsuspecting mug. What should be the aim of all is not to invest in rubbish loans even if there is cashback. The platforms then may start to only put out quality loans which will go and stop lending to all and sundry so the platforms can make a quick profit at investors expense. Without them having any risk. Crossed with littleoldlady.
|
|
SteveT
Member of DD Central
Posts: 6,873
Likes: 7,918
|
Post by SteveT on Oct 29, 2017 12:55:35 GMT
The "fairness for all" argument for keeping to a par-only SM is rather weak, IMO. There is little "fair" about the current MoneyThing SM; it's just that it favours those who obtain new information earliest, plus those with enough time on their hands to watch like a hawk for a new selling queue appearing.
MoneyThing lenders are all adults and, presumably, are all in it to make money. No-one is ever forced to buy (or sell) via a secondary market. If someone doesn't like the way a platform operates, then they vote with their feet. Currently it appears that it's bigger hitters who are choosing to do so on MoneyThing, which must have implications for filling future loans (in terms of loan size, rate and/or need for cash-back).
I'm no big hitter, but I probably justify "medium hitter". Whilst I used to be happy to stick mid-4 figures into a MoneyThing loan, sometimes 5 figures, I'm currently very much more cautious about the sums I'm willing to risk becoming "locked in" to a particular loan. If that poses MT no issues then I'd expect to see no change to the SM structure. If it does, then I would.
|
|
archie
Posts: 1,839
Likes: 1,842
|
Post by archie on Oct 29, 2017 12:56:48 GMT
archie . I'm not really arguing against MT specifically. There is room for different models. This poll is specific to MT. If the majority had voted 'Yes' I wouldn't be arguing at all. If variable pricing was confirmed to be going ahead I would reduce my investment here. As it stands 62% voted 'No'. I agree with the bit in bold.
|
|