registerme
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Post by registerme on Nov 22, 2015 11:27:20 GMT
But we don't see how "RateSetter Treasury" munges things in the background.......
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Post by westonkevRS on Nov 22, 2015 12:14:29 GMT
But we don't see how "RateSetter Treasury" munges things in the background....... You make it sound like there is some active department pulling the strings behind a curtain of manipulation. They don't do anything, just forecast demand and notified withdrawal. You see the outcome of their efforts. If money is predicted to be tight, they run a promotion!
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registerme
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Post by registerme on Nov 22, 2015 13:39:53 GMT
But we don't see how "RateSetter Treasury" munges things in the background....... You make it sound like there is some active department pulling the strings behind a curtain of manipulation. They don't do anything, just forecast demand and notified withdrawal. You see the outcome of their efforts. If money is predicted to be tight, they run a promotion! Yes, I do, don't I. And it's good to know that isn't the case. There are things that I am uncomfortable with about RateSetter:- * The volatility is marked, and I don't think that this is good for either lenders or borrowers. * The use of "Market Rate" (and supposed "experts") can exacerbate the impact of this. But yes, we've done this one to death . * The comment from the FAQ that "If a situation occurred where there are insufficient funds on the market to finance existing loans, the Lender would be 'locked-in' to the contract until the Borrower had repaid their loan" I interpret as meaning that not all >>existing<< loans are funded (or might not be) by us Joe Public lenders. If they're not funded that's where a Treasury Department could step in. Which in turn implies active involvement in the market by RateSetter. * The fact that I can invest in the monthly market, get a contract for a monthly loan, and then find out that I am locked into a much longer term. It might be unlikely, but it does imply that things aren't nearly as simple as they are made out to be - with a lender one side, borrower the other side model there shouldn't even be a funding question for >>existing<< loans except where somebody chooses to sell out of a loan they're in. * If there's increased demand for loans and insufficient lender ability to meet that demand then rates should rise. This will in turn attract more funds. That's how a market works. Cashbacks et al skew this, and not in the favour of the lender (but yes, I accept that RateSetter have a business to run and part of this involves looking after customers on both sides). My view on signing up to RateSetter was that you had lenders offering rates and volumes on one side, and borrowers counter offering rates and volumes on their side. The meeting of the two set the expected rate for that tenor, and over time this would vary with lending volume, borrower demand, lender required return, borrower max cost, risk expectations, other lending / borrowing opportunities and base rates. That's clean, transparent and I like it. Some of the bullets above call this view into question. I'm not sure I actually understand it. Now I am not uncomfortable enough to be "down on RateSetter", or to pull my funds off, but I do think more transparency would be useful. Of course it's always possible that I am just being thick .
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Post by nutfield on Nov 22, 2015 16:34:39 GMT
But we don't see how "RateSetter Treasury" munges things in the background....... You make it sound like there is some active department pulling the strings behind a curtain of manipulation. They don't do anything, just forecast demand and notified withdrawal. You see the outcome of their efforts. If money is predicted to be tight, they run a promotion! The trouble is that the "promotions" are a bit like using a sledgehammer to crack a nut. The rates are immediately severely depressed and the market is artificially lowered for a couple of months. The market does not "feel" like the genuine one that RS claim it to be.
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Post by marek63 on Nov 22, 2015 16:39:38 GMT
Hypothesis: RS Treasury (purely based on posts read here) do what every other Treasury department do in most corporates - try and match the requirements of the borrowers with the lenders - but it is NOT a 1-1 match particularly not over time. And RS can put some of their own funds to work if they choose to smooth the gaps at any moment. Example: They can offer any 1 year borrower supply from any 1 year plus lender - inc 2 or 3 year. They can top the offer up with their own in house cash if they want. And they can take some risk by putting some of the 1-2-3-6 month lenders cash to work with the one year borrowers. Similarly, they can offer a 3 year lender any rates from the borrowers that they feel comfortable with up to 3 years - If the borrower repays earlier, RS has to take the 'risk' of re-filling in that missing amount. Deciding what and how to blend those terms of loans is the job of algorithms and the Treasury team. So I am not surprised the RS market is volatile to some degree and requires careful control. It is not the basic P2P world of 1 borrower=1 lender = 1 rate. Or this could be nonsense So Treasury can mix up the rates and terms of the available lending and borrowing offers to get something that keeps the market flowing at any stage - or chase marketing to run promotions if they need more borrowers or lenders ... I don't think it is a giant conspiracy - more like a daily battle by the Treasury team to keep the beast balanced if it is like any Treasury team I have worked in.
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registerme
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Post by registerme on Nov 22, 2015 17:01:30 GMT
Far from impossible, but if so that is a very active treasury team.....
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oik
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Post by oik on Nov 22, 2015 17:52:48 GMT
None of this would matter if casual lenders weren't caused to believe it all worked very differently. As with the Ratesetter email to noobies: "Early access. Want to earn the 5 Year rate but concerned about putting money away for years? Don't worry, with our Sell Out feature you can access your money at any point for a small fee. Find out more." (with a non-working link) much is less than clear. Writes Rhydian Lewis:So a rate set entirely by normal people agreed with each other on the internet. Well that's the story from a very energetic PR department...
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jlend
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Post by jlend on Nov 23, 2015 8:41:18 GMT
But we don't see how "RateSetter Treasury" munges things in the background....... You make it sound like there is some active department pulling the strings behind a curtain of manipulation. They don't do anything, just forecast demand and notified withdrawal. You see the outcome of their efforts. If money is predicted to be tight, they run a promotion! Sorry if someone has already asked this question. When loans on the monthly market roll over each month (e.g. when a two year loan is funded from the monthly market by ratesetter), what lender rate does the loan roll over at? ie what rate does it get placed back on the market at to try and get matched. The market rate ? A different rate set by ratesetter as the loan rolls over? The original lender rate of the loan?
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alender
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Post by alender on Nov 23, 2015 9:24:40 GMT
IMHO funding longer term loans from a short term supply has significant risks. The main risk is a negative event for Ratesetter, P2P in general or one that affects other financial markets, this event does not have to be significant or real just perceived to be significant by a proportion of investors. This will start a number of investors taking funds out of Ratesetter when contracts mature and some trying to cash in investments (see picture of Northern Rock queues in 2008). If Ratesetter can weather the storm for a perhaps a few weeks to few months funds will start to flow back. However once a monthly contract is not repaid on time and the word is out very few people will place funds with Ratesetter, the so called Ratesetter markets will freeze, no income for Ratesetter as a company to pay costs, you can guess the rest. Some people might think this is as a Machiavellian plot; however this is exactly what happened in the 2008 Banking crises. Retail banks instead of using depositors funds were using the short term money market (where cost of money was cheaper) to fund longer term mortgages/loans, they could no longer get the funds from the money markets as these froze mainly due to the problems with CDOs. It did not matter a bit if you had no exposure to CDOs and even in the worst cases like Northern Rock the loans were not as bad as perceived and eventually turned a profit. The only difference is that people supplying the money on the short term money market are sophisticated investors would not allow their funds to be locked for longer that the contact period, why would they, they can get better returns if funds are invested for longer.
As there is no FSCS compensation scheme, the relative insignificance of P2P compared to the Banks and the unpopular support for the banks I cannot see any support from the Government for P2P.
Any P2P platform that gets through a storm like this without freezing investor’s funds and maintains investor confidence will be in a very strong position. Ratesetter should take note there are always people wanting to borrow, there are not always people willing to lend.
Have Ratesetter run any stress tests for negative events, the Banks now have to run these tests.
I am happy to invest with Ratesetter but for me the interest rate must reflect the risks.
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oldgrumpy
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Post by oldgrumpy on Nov 23, 2015 10:51:41 GMT
You make it sound like there is some active department pulling the strings behind a curtain of manipulation. They don't do anything, just forecast demand and notified withdrawal. You see the outcome of their efforts. If money is predicted to be tight, they run a promotion! Sorry if someone has already asked this question. When loans on the monthly market roll over each month (e.g. when a two year loan is funded from the monthly market by ratesetter), what lender rate does the loan roll over at? ie what rate does it get placed back on the market at to try and get matched. The market rate ? A different rate set by ratesetter as the loan rolls over? The original lender rate of the loan? They will be placed back on the market according to the prevailing instructions on your reinvestment page. These you can alter whenever you like.
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jlend
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Post by jlend on Nov 23, 2015 12:21:58 GMT
Sorry if someone has already asked this question. They will be placed back on the market according to the prevailing instructions on your reinvestment page. These you can alter whenever you like. And a slightly different different question When loans on the monthly market roll over each month (e.g. when a two year loan is funded from the monthly market by ratesetter), what borrower rate does the loan roll over at? ie what rate does it get placed back on the market at to try and get matched. The market rate ? A different rate set by ratesetter as the loan rolls over? The original lender rate of the loan?
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oldgrumpy
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Post by oldgrumpy on Nov 23, 2015 12:27:48 GMT
I'm not quite with you. My monthly loans don't roll over. The repayments are reinvested in new loans at whatever lender rate I choose. usually a month, sometimes less after they start (the borrower rate can be seen in the contact details).
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Post by Deleted on Nov 23, 2015 14:12:44 GMT
IMHO funding longer term loans from a short term supply has significant risks. Yes, absolutely. And Ratesetters Terms and Conditions dump this risk squarely on the monthly lenders.
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pip
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Post by pip on Nov 24, 2015 7:23:27 GMT
Guys the monthly (and for that matter yearly) markets are cryptic at best. Personally wouldn't touch with barge pole for following reasons:
- with these products you are taking on the responsibility to refinance a loan for a month, and the money will only be returned assuming the loan can be resold after a month. In theory what this means is that if in your month things go down the plug hole (economy or ratesetter wise) there is likely to be insufficient liquidity to pay back your loan. - the rate you get for the duration of the extension of the loan until there is enough liquidity to repay you or in the event of a resolution event until the provision pays you the payout ratio based on platform defaults, is ALWAYS stuck at the lower rate even though the loan could actually last years. - therefore while the loan product is for a month you take ALL the risk of a longer duration loan during that month (clearly not all the risk for the duration of the loan as the risk is passed on to the next month borrower each month it can be sold). - Now what I am unclear on is who is getting the difference between the loan rate and the 'monthly market rate'. Does ratesetter choose to refinance all its low rate loans to monthly markets and give the 5 year lenders the juiciest loan rates or does ratesetter pocket the difference between? Or does it use the low rate given to monthly lenders to subsidise the high rates of 5 year lenders? Who knows and this is a question I never get a clear answer on. - also not clear about how ratesetter decides how loan supply to the different durations of the loans are allocated (this is not as clear as it sounds, remember the duration for borrowers and lenders on ratesetter is often not aligned as loans are re-sold) - I think the monthly markets actually pose the biggest risk to ratesetter as they are subject to short term liquidity problems which could create a panic in lenders. If at any moment lenders are not returned their money on time, I reckon lenders would pull out quickly creating further liquidity problems on the sell out function.
In conclusion the monthly market is a cryptic market which I don't feel anybody outside of ratesetter can really understand with the information avaliable. For me with any investments if you don't understand it don't invent. I would always go for the 5 year product myself where the rate reflects the risk of the loan over 5 years, whereas with the monthly you are taking the risk without the reward.
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pikestaff
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Post by pikestaff on Nov 24, 2015 8:37:46 GMT
Sorry if someone has already asked this question. When loans on the monthly market roll over each month (e.g. when a two year loan is funded from the monthly market by ratesetter), what lender rate does the loan roll over at? ie what rate does it get placed back on the market at to try and get matched. The market rate ? A different rate set by ratesetter as the loan rolls over? The original lender rate of the loan? They will be placed back on the market according to the prevailing instructions on your reinvestment page. These you can alter whenever you like. Does not answer the question. It's not about what rate the lender's funds are re-offered at. It's about what rate the LOAN is re-offered at to lenders. How RS determines that rate is unclear, but it must vary in response to market conditions. It may well be the market rate. I broadly agree with pip about the cryptic nature of the monthly market (though I'd be amazed if there is any cross-subsidy of other markets). There is a small but intederminate amount of liquidity risk. Until a panic happens, we won't know how robust RS's defences (such as backstop liquidity providers) are. The defences will be finite so they could run out. If the panic is justified we are probably headed for a Resolution Event (and the end of RS) anyway.
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