Lendy Wealth

by using this term, FR, I'm merely taking what someone else, far more knowledgeable than me, had applied to AC quicker access accounts, on another thread, therefore this has been discussed elsewhere. Eg 30DA, and indeed, FR model does explain this AC method well. I'd lifted this notion from there, and lightly pondered how Ly could release funds (when they are so often entrenched in tranches with low or no SM movement) without it being a different model to the one that individuals are exposed to on Ly. This forum, I thought was for discussion rather than hasty admonishment.

Here's the other discussion. p2pindependentforum.com/thread/12655/why-qaa-30daa

Any truth in the rumour that the real name for the invest in the dark blackbox £50,000 Lendy Wealth account is Premium Bonds?

At least with P Bonds you can get your capital back at any time.

Some might suggest that "Cashgone/ Moneypit" would be better name for Lendy Wealth. 

zlb and Proptechfish . This is an aside but both of you have fallen into believing two common misconceptions about how the banking system works. The first common misconception is that banks act simply as intermediaries, lending out the deposits that savers place with them; the intermediation of loanable funds (ILF) model of banking. The second misconception is that some how banks "multiply-up" those deposits; the deposit multiplier (DM) model of banking. Combined they lead to the fractional reserve (FR) model of banking.

These models are now very out-of-date, an illusion, albeit one that most economics textbooks unfortunately still tend to support. The reality is that commercial banks use the financing through money creation (FMC) model. Bank, subject to prudential limits, lend to borrowers, creating deposits ex nihilo i.e. the process of lending creates the deposits (the reverse of the ILF model). Banks are only limited in how much they can lend (create money) by profit margins and prudential regulation (capital adequancy requirements). Monetary policy acts as the ultimate limit on money creation. Modern central banks target interest rates (the price of money), and are committed to supplying as many reserves (and cash) as commercial banks demand at that rate (so there is no limit on volume). The quantity of reserves is therefore a consequence, not a cause, of lending and money creation. Please see the following BoE papers link (simple explanation) and link (some light math).

I don't understand the benefit of lendywealth:
- the 10% return is not guaranteed and will depend on the recovery. So 10% will be achieved if no defaults.
- liquidity is not guaranteed either as funds can be locked if a borrower becomes "non performing"

So why on earth would anyone use lendy wealth if it gives less return than lendy typical loans, but still keep all the associated risk of liquidity and loss of capital?

That is the magic of financial products for retail investors. You take a bunch of very simple things like loans, wrap them up in some very simple "account" (add a bit of gold font to make it feel luxurious) and hey presto that's 5% in margin. Yes, it's about putting lipstick on a pig ... but the lipstick is cheap. What's not to like?

Frankly, there is rapidly growing market for these types of product from an affluent (but often not genuinely HNW), older generation that think deposit rates at 5% were somehow normal and who think property is safe. Some of these investors are naive and don't realize that the underlying is a high-risk investment; others do understand but prefer the riskiness to be hidden so they don't see it (ignorance is bliss), others just don't want to be bothered with self-selecting loans (understandable since it can end up a full time job). They all want something that looks and feels like a savings account.

By exploiting these investors, Lendy are meeting that need whilst sensibly attempting to diversifying their capital base. They previously tried a number of series of Saving Stream bonds, of 3-5 years in maturity at yields around 6%. I don't think these sold particularly well since they required IFA as a conduit and these days IFAs are totally risk averse. And it's not a though Zopa, RS, FC, AC, Octopus etc aren't doing something similar. The oddity is that it took this long for Lendy to come up with this product and that the product isn't very good!