fliprent

Note to president Obama… Our current financial system doesn’t work!  As if he really needed me to tell him that!  The current mortgage meltdown and credit crisis should tell us all one thing for sure.  We don’t know what the “h-e-double hockey sticks” we are doing in our financial markets.  Many years ago there were no banks or brokers to create this mess.  Banks served a great purpose in building our country to what it is/was.  But maybe its time that we do something different or in this case do it again but better.   What I am referring to is people investing in other people not banks.  Today this concept is commonly referred to as Peer to Peer lending. 

What is Peer to Peer Lending? 

Banks are basically intermediaries.  They take our money and reinvest it with someone or something else.  In the end the banks own everything.  Peer to Peer lending creates an environment where the people once again own the economy and the businesses that thrive in it.  There are many different models for Peer to Peer lending such as secured, unsecured, pooled, and direct.  The details are a bit involved.  Thanks to the Internet, we the people have more people who can handle the hard part for us.  Services such as Prosper, Zopa, Lending Club, Kiva, and The Open Source Science Project are just a few examples of Peer to Peer networks.   These portals create a marketplace whereby lenders (people) loan money to borrowers (people) based on things like credit score and collateral.   The loans can be for business or personal use and are usually short term.  The lenders don’t need to risk large sums of money on one borrower either. Take for example, a borrower that needs a 10,000 loan to fund a new business.  There may be 100 lenders loaning the money to this particular borrower.  In this scenario, each lender is only risking 100 dollars each on this loan and possibly receiving a 12 percent return. With this model lenders can spread their risks across many borrowers so that one default does not “break the bank”…pun intended.  Imagine a world where we the people actually own and control our own economy instead of being relegated to spending slaves, in other words…consumers.  People would be more than happy to invest in a product that they love to buy and then tell the world about this great product. 

I admit that this is not for everyone and trying to create this financial model would be extremely challenging.  However, fixing our economy is going to take some very creative minds and the challenge is gargantuan.  Obviously we need the banks and our government cant just let them fail.   In light of todays news that more than 100 billion more bailout money is going to Bank Of America, we may not have a choice.  The new administration is facing the daunting task of coming up with new ways of doing business.  Peer to Peer lending might just be an old path to the new future.