The ‘sell after six repayments’ strategy

sl125: "What you are missing is the fundamental ammoral (rather than immoral) nature of markets."

I'm not calling for someone to pass a law.

If I was at a party and some guy was bragging about how he sold his old car without mentioning the severe problem it had with its head gasket, and how the buyer was so dumb he never spotted it, I'd think ill of that guy.
I don't want the police to come and drag him off. I don't think he owes the buyer a refund necessarily. All I'm saying is he's someone I wouldn't like very much.

It's not about the moral nature of markets, it's about judging people by their behaviour. I'm not going to keep banging on about this: if people don't care about (or don't understand) the difference between what is legally permissible and what is morally decent, that's their loss. There's a lot of joy to be had in valuing one's own sense of honour. Sleeping well at night is a privilege and has to be earned.
Before anyone even thinks it, I'm not placing myself in the category of those people whose behaviour is virtuous. I'd like to move in that general direction (as I'd hope most people would) but that's not the same thing. 

You have a choice with peer-to-peer lending: you can either do it and hope everything goes well, or not do it at all, or you can pursue some other strategy such as the one under discussion. If you decide to pursue the strategy of passing on your bad loan book to someone else so that you keep the early profits and they take the mature losses, that's your business and (once again I repeat) I have no wish to interfere with your doing so. It does however make you a bad person if you do it.

I'm dipping back out actually. In the interests of full disclosure, my total cross-platform exposure to P2P is now less than £500 so I don't really think I'm entitled to an opinion any more. Have fun with it. We're going to need people who understand the ins and outs at some future time when the State isn't all over it and it can be a genuinely useful activity.

B***y quoting system......

...To others who have decided to purchase them: either actively, or passively as part of a 'policy driven' 'investment' strategy provided by the platform that has decided that they are eligible to be bought under that strategy.

I may of course not agree with that strategy for my own needs. But that is a different issue.

Ah, the old second hand car analogy.... Otherwise known as "Akerlof's lemons" after the 1970 paper by the economist George Akerlof.

As I think another poster pointed out, this is a false analogy. In the market for second hand cars the seller has the advantage of knowing what faults there are with the car; the buyer has an unfair disadvantage because they have less access to information about the car. The market for second hand cars is therefore biased against a) the buyers, and b) the sellers of good cars (because the market price will be lower to reflect the fact that the buyer has no way of knowing whether the car is a lemon).

The key difference is the seller of a loan part doesn't have this information advantage over the buyer, as both buyer and seller have access to the same information - the loan application, the repayment history, etc.

Therefore, the seller is simply selling in their belief (rather than certain knowledge) that the loan may go bad, whereas the buyer is buying in their belief - using the same information about the loan - that the loan will be profitable to them. There is a key difference between selling something to take advantage of asymmetric information and selling something by drawing a conclusion based on symmetric information.

The FC secondary market scenario it is therefore amoral rather than immoral.

Well yes, but FC are notably unwilling to fix it, and newbies are (mis)led to believe it is a good, or at least usable, investment strategy. Maybe if autobid refused to buy parts with late payment history, or was smart enough to buy parts at a discount instead of at par (cf property loans) I'd have less of a niggle with it. I suspect most people here have been burned by autobid, however briefly, before they wised up. Unloading 'slightly worrying' parts (eg missed a payment, whatever) at a discount to a discerning buyer ('Ok, it's a bit dented but you can have it for 25% off ..') is one thing, but shovelling it onto some newbie because they failed to comprehend the nuances of Autobid (like 'it will buy cr&p .. you have been warned!') feels, if not immoral, at least 'unkind'.

There is not even a tick box to say 'don't buy in the secondary market', as an option, is there. Never mind 'don't buy dented parts', or 'don't buy at par what you can get at a discount'.

What FC says is 'we are planning / looking at / considering / in the process of implementing / pick your own weasel words  improvements to autobid, feel free to make suggestions'. I could point you at the thread, if I could be bothered to go find it. Actually I think they've said it more than once, they just haven't done it yet. And I have certainly suggested (even over there) the shortcomings outlined above and how to fix 'em, along with some other improvements like multi-bids, and dynamic bidding at the server end.

I do hold FC responsible for the lousy state of autobid, and for not flagging its shortcomings to new arrivals .. the new arrivals could always read either forum, of course .. meantime, as I said, I regard it as slightly unkind to sell them dented parts at par (but cheerfully admit to having done it, and still doing it with property loans which go faster at par than at -0.3% (hmm, actually yesterday I sold two at +0.3% .. what's that all about?) .. not that property loans are visibly dented, just that most of them can be bought at a discount, just not by autobid.

Imo dynamic bidding will never happen on FC , or at least as long as they carry on with the current model. There should be more warnings to newbies (perhaps short videos) educating the newcomers what the limitations/ pros & cons of auto bidding are). I never touched autobid, and I stopped buying on the SM after  buying only a few loan parts.

I can’t think why but since this thread started there has been an increase in the number of parts for sale with 6, 7 or 8 repayments made, often at 3% premium but with very tasty rates. Those who are prepared to balance the higher default risk after six repayments against the higher rates may find this is a good time to buy on the SM.