fabijo's account talk

[Birchtree]

CP,

You'll have to spend eight trading days on the hot seat. It'll be painless.

 

[fabijo]

If you can't beat 'em, join 'em.

Has anyone here been using prosper.com?

It's a place where you can either apply for a loan or bid on a loan that someone else applied for. They do credit checks and income checks before actually setting up the loan. With lots of people drowning in credit card debt or some other high interest debt, they're willing to get loans at rates like 17% - 20%. Every loan has a 3 year term, so it might be a bit like putting your money in a 3 year CD, but you get cash payments every month, where the first payments are mostly interest payments.

I started an account last year and made a few loans, but I'm starting to use it a little more. If you're trying to find different ways to spread your portfolio, you might join the banking industry and make some loans to people. Just make sure you don't go and create some written up CDOs out of these loans.

http://www.prosper.com

 

[fabijo]

Dollar May Get `Crushed' as Traders Weigh Up Bailout
http://www.bloomberg.com/apps/news?pid=20601087&sid=aINbWL.L0ZaA&refer=home

The combination of spending $700 billion on soured mortgage-related assets and providing $400 billion to guarantee money-market mutual funds will boost U.S. borrowing as much as $1 trillion,

 

[presskh]

If you can't beat 'em, join 'em.

Has anyone here been using prosper.com?

It's a place where you can either apply for a loan or bid on a loan that someone else applied for. They do credit checks and income checks before actually setting up the loan. With lots of people drowning in credit card debt or some other high interest debt, they're willing to get loans at rates like 17% - 20%. Every loan has a 3 year term, so it might be a bit like putting your money in a 3 year CD, but you get cash payments every month, where the first payments are mostly interest payments.

I started an account last year and made a few loans, but I'm starting to use it a little more. If you're trying to find different ways to spread your portfolio, you might join the banking industry and make some loans to people. Just make sure you don't go and create some written up CDOs out of these loans

http://www.prosper.com

Interesting - what is your recourse if the people don't make their payments?

 

[fabijo]

Interesting - what is your recourse if the people don't make their payments?

The same as any debtor who does that. It goes on their credit report and they have a collection agency hounding them.

Here's how a typical loan works there:

Person makes a loan listing
$5,000 @ 28%, Debt Consolidation

I need this loan, blah, blah, blah. Here are my monthly income/expenses.

People bid on the loan
Minimum bid is $50. Then you put what your lowest interest you're willing to accept. The interest rate only lowers when the loan gets bid on the full amount by a bunch of people, then others bid lower percentages. You stay in as long as your rate is either lower or matches the current rate.

Also, during the bid process, people can ask questions of the debtor and everyone else gets to see the Q & As. In the end, you decide how much risk you are willing to take.

The bid closes

The loan then goes through a review process by Prosper. I've bid on loans, then a few days later, Prosper cancels the loan because the person's identity/income could not be verified. Once the loan is approved, the money is withdrawn from your account. The debtor pays Prosper back, then Prosper splits up the monthly payment to the people who provided the loan. So, Prosper is doing the loaning. It stays confidential.

If they don't pay up, a collection agency gets involved. They take a piece of the pie, so it is in their interest to get it back.

I guess that since a loan is mostly interest at first, you have a better chance of making up your money toward the beginning, especially when the rate is high, like 17%.

You can sort people by credit score, then build a portfolio of loans based your risk tolerances.

 

[fabijo]

Today's the day Cramer told his audience to dump 20% of their portfolio.

 

[Corepuncher]

Today's the day Cramer told his audience to dump 20% of their portfolio.

Or did he just say make a list of 5 stocks and dump the lowest one? Kinda depends on how many stocks you own, but 1 in 5 would be 20%. Did he actually say 20%? I don't recall.

 

[presskh]

The same as any debtor who does that. It goes on their credit report and they have a collection agency hounding them.

Here's how a typical loan works there:

Person makes a loan listing
$5,000 @ 28%, Debt Consolidation

I need this loan, blah, blah, blah. Here are my monthly income/expenses.

People bid on the loan
Minimum bid is $50. Then you put what your lowest interest you're willing to accept. The interest rate only lowers when the loan gets bid on the full amount by a bunch of people, then others bid lower percentages. You stay in as long as your rate is either lower or matches the current rate.

Also, during the bid process, people can ask questions of the debtor and everyone else gets to see the Q & As. In the end, you decide how much risk you are willing to take.

The bid closes

The loan then goes through a review process by Prosper. I've bid on loans, then a few days later, Prosper cancels the loan because the person's identity/income could not be verified. Once the loan is approved, the money is withdrawn from your account. The debtor pays Prosper back, then Prosper splits up the monthly payment to the people who provided the loan. So, Prosper is doing the loaning. It stays confidential.

If they don't pay up, a collection agency gets involved. They take a piece of the pie, so it is in their interest to get it back.

I guess that since a loan is mostly interest at first, you have a better chance of making up your money toward the beginning, especially when the rate is high, like 17%.

You can sort people by credit score, then build a portfolio of loans based your risk tolerances.

I looked at their website. I don't know - I don't consider myself any kind of expert at being a small bank and it seems very risky, given the present economy. I wonder what the default rates are and if you can actually trust the credit "ratings" they advertise (we all know about how these ratings can be pretty much worthless). I'll keep my eye on this site for awhile and study it. I'm not inclined to risk my money without a good amount of research but it may be a worthwhile risk, given the returns.

Thanks for the info, Fab.

 

[fabijo]

Or did he just say make a list of 5 stocks and dump the lowest one? Kinda depends on how many stocks you own, but 1 in 5 would be 20%. Did he actually say 20%? I don't recall.

Here it is:

For this week’s Game Plan, Cramer asked viewers to spend the weekend reviewing their portfolios and rating their stocks on a scale of one to four. Ones are stocks that you’d buy right now at current prices. Twos are stocks you’d buy on a pullback. Threes are stocks you’d sell into strength. And fours are names you’d sell immediately. Given this rally, Cramer said, at least 20% of your portfolio should be fours.

http://www.cnbc.com/id/26793420

 

[fabijo]

I looked at their website. I don't know - I don't consider myself any kind of expert at being a small bank and it seems very risky, given the present economy. I wonder what the default rates are and if you can actually trust the credit "ratings" they advertise (we all know about how these ratings can be pretty much worthless). I'll keep my eye on this site for awhile and study it. I'm not inclined to risk my money without a good amount of research but it may be a worthwhile risk, given the returns.

Thanks for the info, Fab.

Here's a link to their performance page:
http://www.prosper.com/lend/performance.aspx

And a cool website for tracking people's performance (kind of like what we do here):
http://www.lendingstats.com/

 

[fabijo]

It's kind of quiet here today. I should have made an IFT back in for today.

 

[fabijo]

Am I the only confused one here? I'm trying to sort out all this mess and I just don't get it. Was all this some fake emergency? Is the crisis to the public or to the financial institutions? Why are we buying all these assets? Is this a preemptive strike?

What exactly is going on?

 

[Birchtree]

Yes, it's a pre-emptive strike to keep all the at risk population in their new homes so they don't go to forfeiture and create further problems for those who remain in good community standing. Terms will be reset according to your ability to pay - if you can't pay just promise to vote for Obama and you get to live essentially rent free. What a deal. You also have to promise to open a nursery or day care operation to help defray living expenses. And you have to promise to hire your local Mexican to come by on occasion to mow the lawn.

 

[fabijo]

Congressional Leaders Stunned by Warnings
http://www.nytimes.com/2008/09/20/washington/19cnd-cong.html

As Senator Christopher J. Dodd, Democrat of Connecticut and chairman of the Banking, Housing and Urban Affairs Committee, put it Friday morning on the ABC program “Good Morning America,” the congressional leaders were told “that we’re literally maybe days away from a complete meltdown of our financial system, with all the implications here at home and globally.”

 

[presskh]

Am I the only confused one here? I'm trying to sort out all this mess and I just don't get it. Was all this some fake emergency? Is the crisis to the public or to the financial institutions? Why are we buying all these assets? Is this a preemptive strike?

What exactly is going on?

They're basically going to buy up all the bad loans/derivatives made and held by these irresponsible financial institutions. The thinking is that buying up all of these loans and their derivatives (CDO's, CDF's) will free up more of these institution's money so that they can start lending again. It may work, but it will be a long and slow process - first, there has to be a demand for homes, which has tanked in this downturn. But this also applies to loans for cars, personal and business loans, etc.

I am not for the bailout, but I do understand their thinking, I think.

 

[Birchtree]

fabijo,

Think about this and I'll try and keep it clean. Who bought the sub-prime mortages and apparently were not qualified. Why did Country Wide and other mortgage lenders decide to make these types of loans available - it was a mandate from the Democratic Congress to allow certain members to participate in the American dream. How do you do that - you lower standards and then sell these mortgages to unsuspecting financial institutions whom should have known better - but the fees and profits were titillating and nefarious. When the Fed started to increase interest rates I said two years ago they were determined to shut down the inflationary growth in the housing industry. Now the folks that are in trouble will have their interest rates and mortgage payments reset and subsidized by the government just like always - it's all liberal dogma. That's why the government is buying all the paper so they can control the distribution of foreclosures or slow them down. If one has a four bedroom, 3000 sq.ft. home why not take in other families and share the expenses. You may see some of this as an option. The builders have taken their money and the buying institutions were counting on servicing fees from the mortgages - but when the new proud owner doesn't make that payment there should be repercussions leading to foreclosure - that will now stop for awhile. Shall I go on?

 

[Silverbird]

It's also partially the removing of Glass-Steagall (a rider put on an unreated bill by Gramm), and the 2007 "experiment" removing the uptick rule. These allowed the creative financing behind a lot of the toxic mortgages. Neither Party is innocent here, after all the Dems have only been in power in Congress in the last two years and the Reps had it during both Clinton and the first 6 years of Bush.

Both McCain *and* Obama are calling for more regulation and oversight. That's how bad this is.

 

[fabijo]

fabijo,

Think about this and I'll try and keep it clean. Who bought the sub-prime mortages and apparently were not qualified. Why did Country Wide and other mortgage lenders decide to make these types of loans available - it was a mandate from the Democratic Congress to allow certain members to participate in the American dream. How do you do that - you lower standards and then sell these mortgages to unsuspecting financial institutions whom should have known better - but the fees and profits were titillating and nefarious. When the Fed started to increase interest rates I said two years ago they were determined to shut down the inflationary growth in the housing industry. Now the folks that are in trouble will have their interest rates and mortgage payments reset and subsidized by the government just like always - it's all liberal dogma. That's why the government is buying all the paper so they can control the distribution of foreclosures or slow them down. If one has a four bedroom, 3000 sq.ft. home why not take in other families and share the expenses. You may see some of this as an option. The builders have taken their money and the buying institutions were counting on servicing fees from the mortgages - but when the new proud owner doesn't make that payment there should be repercussions leading to foreclosure - that will now stop for awhile. Shall I go on?

I guess I'm still scratching my head about this. How is it that every bank in the world made these horrible bets with most of their portfolio? It seems like something is missing here. Could they all really have gone mad and abandoned any sense of precaution? If banks aren't making loans any more, why are the rates still so low? I just bought my first house this summer with a fixed rate of 6.25%. It's not as low as it could have been just a few years ago, but that is still pretty damn low if all these banks are suffering and running out of cash. Besides, banks were pre-approving me for $419,000!!! There's no way I could afford that! It all sounds fishy to me.

 

[Birchtree]

The fixed mortgage rate is based on the 10 year Treasury - remember bonds go up during times of negativity and rates are reduced. The problem with the banks was that they bought all these mortgage obligations among themselves. A lot like musical chairs - the last one caught pays the price with no place to sit. If you have an at risk neighbor his 6.25% rate might get knocked down to 4% so he can make his payments. It's not fair but we are dealing with a left leaning policy out of the Congress. This is all politics.

 

[fabijo]

It still seems like I'd believe the crisis when I see it. But I guess I may not see it, since they did all this. Let people suffer for their mistakes. I have to. I couldn't afford a house because of the maddening price increases taking place. Now by saving people's bad choices, they're keeping the house prices afloat. At some point, something's gotta give.

I'm just frustrated. There's always something. There's always some strange investment scheme lurking around the corner about to explode and send the financial world into turmoil. Last year, all we heard about was the yen carry trade. It seemed to pop out of the blue for some of us. Now it's the credit default swaps. What's next? I'd rather there just be the meltdown now. Get it over with. It's going to happen eventually, so the longer we push it off, the worse it will be.