As Defaults arguably mount, are "matters" coming to a head?

Same here. I started with Zopa over 10 years ago and increased my investments considerably about 5 years ago, peaking early in 2016. Since then I have been reducing on almost every platform except one or two which I thought were lower risk and low effort (with significantly lower returns as well). My guess is that I will declare about a quarter of the P2P income in 2017/18 that I did in 2016/17

I don't think so and no respectively. Most of these platforms have just passed FCA approval and are unlikely to get that much scrutiny in the near future. Also the FCA have said that they don't think that P2P investors are vulnerable i.e. if a loan is paying 12% it probably involves significant risk and they think that most investors can spot that.

Also there has been competition from other types of investor competing directly with P2P (but with institutional money), and many of the banks have returned to some of the sectors they abandoned after the banking crisis.

I have been very lucky as far a losses are concerned, but a lot of P2P is essentially based on trust and that is easily lost and people will feel bitter. There are too many cases in which the platform seems to have had a relationship, or multiple borrowers are in fact the same borrower, or the security wasn't taken correctly, or basic procedures followed such as ensuring that the house wasn't half owned by the wife the borrower. On many platforms I have seen such incidents and I have decided that I am taking more risk than the returns justify.
I don't think anyone is suggesting selling all P2P investments and buying equities, but if they did fall 40% at least I would own some cheap assets and I would be pleased to have significantly reduced my P2P investments, because I guess that I would have been looking at more than a few defaults.

Detailed DD is hard to do whilst remaining diversified. At least two platforms I have abandoned were because having done my DD I then got allocated very small pieces of the loans. And with several other platforms I found that I was spending a lot of time and yet was making only a few extra pounds per year for the effort, which for me wasn't worth it.

I agree with a great deal of what has been written on this thread - the overwhelming majority in fact. I too have significantly decreased my overall P2P lending and reduced the platforms I now actively use - for reasons of trust (lack of) or because the returns have now reduced to levels I remember getting totally risk free as interest from High Street Banks and Building Society's (although not for quite a while admittedly). Furthermore, I do think that there will be a reckoning in the not too distant future as a platform goes to the wall (and/or Courtroom) - or suffers a similar ignominious fate (with lenders likely taking a haircut - or worse).

The problem is that I am already broadly diversified - I have a chunk in gold (a good insurance but no return), I have a big chunk in the stock market (widely diversified by asset class, geo-political risk and geography) but as has been pointed out we are likely very near if not actually at the inflection point. I also have money in property - again, likely at its peak and I hold some cash, which hasn't been an issue for some years with inflation near zero (but now touching 3% - it can no longer be ignored). I've even played with Bitcoin (with a minor success actually) - but you simply can't sleep easy with such huge volatility - well I couldn't!

I suspect this is a not unfamiliar saga for many who frequent this forum - and of course the question is - well if not P2P, what? It may well be that holding a much greater percentage as cash may well prove to be the eventual winning strategy - and I'm increasingly inclined to this view. However, those who warned of previous Stock Market corrections for example (i.e. bubbles) were invariably too early with predictions of doom - by years in some cases (think Greenspan in the mid 90's) - with major loss of growth for those who baled out prematurely. In some ways I'm thinking that in this digital age we are being presented with too many relatively embryonic financial options and choices that we are often ill equipped to objectively judge - try as we might.

It has become crystal clear that passive investing is not even an option if you are serious about making your capital work for you - and that is unlikely to change anytime in the near future. But I do feel that I am spending too much time moving money, considering and researching options, looking at my laptop screen etc. - I do miss just checking my investments occasionally as I might have done in times of yore.

I won't get into why we are where we are - it's not really relevant here - but I am becoming increasingly resentful of feeling compelled to take increased financial risk to get an adequate (a subjective term I accept) return on capital - and perhaps more worryingly of getting accustomed to taking increased risk. I accept I will have no-one to blame but myself if it all goes belly up - but I still can't help having this germ of suspicion that I am being somehow manipulated by macro forces beyond my control.

Whilst I would welcome an increase in the interest rate many would find that very difficult - there is a whole generation now who have never experienced high interest rates (many here will remember paying 15% of their mortgage - ouch). Finally, I do feel an increasing resentment towards HMG - who are ultimately responsible for many of the financial decisions which have brought us to this rather precarious situation (although they will gladly pass the buck to 'global' forces).

Nevertheless, I shall carry on carrying on and try to keep dodging the bullets - as we do - but I'm not a very happy Bunny at the moment. However, I guess I shouldn't whinge too much as I still have choices - many don't.

Ramble over.

In terms of the original question I think we have to recognise that FC with the lion's share of the market probably gets the base line rate about right of 6.5 to 7.5% true interest rate.  (and no I dont like FC's system) but the revert to average concept must be our guide.

If you want to get more than this core 7% in this environment then you need to be able to bet better than this core volume.  In my life I've found very few ways to beat the core but when I have it boils down to

1) betting on a very good person you know personally
2) a very strong track record of beating the core daily not just every other year
3) a company that really sticks to its knitting not just wanders about the place
4) a company that is forced to monitor performance tightly not just lets things run

These three options lead me to only a few portals that I'm using
1) MT comes good on 2 and 4
2) FS comes good but only on pawn (their knitting)
3) AC on turbines only and even then not comfortable

That leaves me a  bunch of portals that need to come off my radar.  RS can't reach 7%.  FC I don't trust to reach 7% when they change the rules next, AC when the turbines are gone they are gone, COL (still too early), ALB I think they struggle to think like a lender and the length of their loans worries me, Lendy jury still out.

The rest of this debate;
In terms of the financial institutions, the globalisation of the capital markets, QE and so the criminalisation of London's financial markets is a problem.  When you put that with the changes in Pension rules a fair few years back has meant that house prices are buoyed by lack of pensions and criminal money.  This has put the youth of the UK in a situation where a house is no longer affordable so taking them out of the financial net that older people enjoy.  Mrs T saw this years ago with her right to buy, how can you expect the voters to vote for an economic situation that they are excluded from?

Trust me you don't have to be wealthy to recognise the car crash waiting to happen if the UK public elect him to power.

/mod hat off, political economist hat on ..

The basic problem, as I read it (which may be wrong) is that since ~1975-ish, the growth in output/economy has stopped feeding through to growth in living standards/wages/whatever for 'joe average'. Increasingly the extra profits (and there are some - the new economy companies like Amazon, Google etc make profits that Ford/Exon/etc never quite managed) are going to a very few 'at the top', or the owners of the capital. 'Joe average' is struggling to even find a job in many cases (automation continues to encroach everywhere .. if you think Uber is bad for someone's business wait for self drive taxis, and self driven trucks/planes). Taxing employees doesn't hack it when there aren't any, and taxing 'company profits' which turn out to all belong in Luxembourg on The Cayman Islands, has not worked too well either. And yep, there are better tax breaks for the elderly/retired (heating allowance for all .. where does that come from?!) than for the unemployed (shortly to be unemployable) young. Hey, I'm a (wishy-washy-pink) capitalist, but having the 8 richest folks on the planet own more wealth than the poorest 4,000,000,000 seems like ineffective distribution of resources .... eventually the 4,000,000,000 WILL kick back.

I'm pleased to see that this Topic is ongoing, and still garnering valid & interesting comments, thank you all.

Re "since ~1975-ish, the growth in output/economy has stopped feeding through to ", it's during the 1970s that the world currencies finally abandoned all vestiges of the gold standard,  a tectonic and stupid move that will have repercussions that have still yet to be felt.

I mean, do you trust any Government when your currency is backed by a promise to pay, with only Debt behind it?! 

EDIT: Apologies, just realised how much this has veered off topic!