Just wanted to let everyone know that the kind folks at LendingClub are offering a $25 sign up bonus for new lenders for the month of November only. If your interested click here to sign up. (Thanks Rob)

I have checked out their site and here are some comparisons to Prosper:

• Borrowers are screened more thoroughly. Better quality listings but lower quantity compared to Prosper
• Minimum bid amount is $25 vs $50 for Prosper
• LendingClub has their secondary market running already. Prosper is still in the quiet period.
• User interface seems easier to learn then Prosper’s, however advanced search seems to be lacking
• Similar to Prosper, I think the best credit grades to invest in are B and C

Furthermore, I chatted with Rob from LendingClub to get a feel for the company. Overall a positive experience. Here’s what I learned:

• They filter borrowers before they are approved to request a loan on the site. (90% are rejected)
• There is a credit approval status for each listing, status can be either ‘In Review’ or ‘Approved’. Approved listings many times have their employment and income verified.
• How interest rates are set. From my perspective, the interest rates should be higher to account for the credit environment we’re in.

Overall, I’ll be testing the site out with a small amount of money in the coming months to monitor performance etc.

Prosper recently added a new loan status Defaulted (PaidInFull). These loans will be grouped under the Paid loan status instead of defaults. (I think this status encompasses loans that were in the charge-off status but were fully paid).

The nightly update is patched to reflect these changes as of today.

Prosper recently charged off numerous loans. These loans were not sold to a debt buyer and are technically still in collections. However, they are effectively defaulted so we’ll categorize these loans under the Defaulted (NAT/Charge-Off) category.

Non-update related: Fred93’s blog. Always found his posts to be very insightful so hopefully by mentioning it here, it will get him some more readers. :)

Prosper just suspended lending in order to create a secondary market for loans. (Essentially an exchange where you can buy/sell loans without waiting for maturity). The details for the new market place are found in an old blog post here.

• “Prosper intends to charge all selling Lenders a nonrefundable resale listing fee of $0.25 per Note being listed for auction sale, or $0.50 per Note being listed for auction with an automatic sale feature.”
• “Prosper also intends to charge the selling Lender a resale transaction fee equal to 1.0% of the sale price, subject to a minimum fee of $0.50, which will be deducted from the sale proceeds at the time a Note is sold to a subsequent Lender.”

Long term I think this is a great move by Prosper. The only problem I see is the ridiculous fees Prosper is charging the lender to sell notes. We’ll see how this works out when it comes out, but for now lending on Prosper will be dead for a few months. (Just when rates started to get attractive too.)

Random market thoughts:

• Feels like we’re in a secular bear market.
• Has anyone checked out the 1929 crash? This is a mirror of it up to this point.
• Don’t panic. Markets tend to overshoot on the way up and the way down. (Today was not panic)
• Don’t gamble. If you have lost control in the casino you will lose control in the markets, it’s the same psychologically.

With the recent financial mess I couldn’t help but think about how true this quote is. Here we are on the brink of financial armageddon and we’re held hostage by the finance industry of this country. As a result, congress has to passed a 700 billion dollar bailout plan to get the credit markets rolling again.

Anyway I’m not into long blog posts so here are some random thoughts on this on going ‘crisis’.

1) Does Congress need to pass this bailout plan? Yes, the alternative is probably much worse.
2) Safe banks to put money in or too big too fail? HSBC, JPMorgan Chase, Wells Fargo, Bank of America, Citibank
3) The fact we’re in a recession is now a reality for Americans.
4) We’re halfway through the bear market if you assume the financial sector bottomed out in July this year. (So one more year?)
5) Will we get an election rally into November? Or Will earnings sink the market?

Today’s drop in the US equity market is going to confirm the idea of a recession in the minds of many Americans. Hopefully your sitting on a substantial pile of cash that you can invest with in the coming months and year. If the government and the Fed have their way we’ll get inflated out of this deflationary crisis and into yet another bubble.

What I found the most disturbing today was how wrong the market was on the bailout vote. A lot of very smart people (think Warren Buffett) were betting on the bailout being passed. With so many people caught on the wrong side of the trade, you have to think that if we don’t rally soon (this week) the market is going to ‘crash’ if earnings season is bad.

With so many conflicting thoughts on this matter, one thing is for certain. This is probably one of the best investing opportunities you will come upon in your lifetime.

Previous thoughts:

2007/11/01/equity-markets-something-just-doesnt-seem-right
2007/10/19/subprime-mortgages-cdos-explained
2007/09/07/recession-coming-in-2008
2007/08/15/10-correction-in-the-stock-market
2007/08/12/prosper-subprime-and-market-volatility

This update fixes/enhances a couple of front end issues.

• Renamed “Defaulted - Repurchased” to “Defaulted - NAT” (NAT = New Agency Test Loans). These loans were previously picked up through an automated script, however Prosper has now recategorized them as Defaulted. Per user request, we have hardcoded these loans as “Defaulted - NAT”. (this in no way affects roi calculations)
• Fixed a bug on the loan map page where Louisiana wasn’t showing up correctly.
• Restructuring backend/infrastructure. (You won’t notice anything different on the front end)

It’s always interesting how the odds are always stacked against the small investor.

Consider the following scenarios: (oversimplified, but it’s to make a point)

- Family buys a home speculating that the price would increase. They put 20% down on a 500k house and get the other 80% as a mortgage. (effectively they are buying the house on margin). If the price of the house goes up 20% they effectively made 100% on their initial investment of 20% down. If the price of the house goes down 20% they have effectively lost their initial investment. What if they can’t afford the mortgage? They go into foreclosure and the house is taken from them.

Now if your a big financial institution the rules should be the same right?

- Financial institution speculates the real estate market would boom. They use 40x leverage to bet on the housing boom. When the market is booming they are raking in the money. However when the market turns south and they can’t afford to pay up the government steps in to give them a helping hand. Uncle Sam is willing to go so far as to extend loans funded by taxpayer money to private corporations. When this doesn’t work the government outright intervenes or promises to step in with taxpayer money to bail them out. (Fannie, Freddie, Bear Stearns)

I am perfectly fine with people taking risks and reaping in the rewards. However there is a fundamental problem with our capitalist markets when rewards attained from risky bets are lining the pockets of a select few and losses from the bad bets are being shouldered by the taxpayer. Who in their right minds wouldn’t bet with other people’s money (OPM) when the risk/reward ratio is so skewed?

On my current trip to China I noticed that inflation is running rampant here, in fact it’s a lot worse here then in the US. Wages, food prices, etc. are all going up.

For instance, a bag of cement which was selling for 12RMB (about $1.75) last year is now selling for 36RMB currently. (The earthquake in May caused prices to sky rocket) Worker wages have been increasing at a 10% clip yearly yet it’s seems barely enough.

The government has been trying to dampen inflationary pressures by regulating the cost of energy which seems futile. A taxi driver in Beijing told me the government is currently subsidizing them over 1000RMB/month in gas rebates to prevent fare increases to customers. However he thinks this will soon end after the Olympics when subsidies cease and fare increases become inevitable.

I’m living in the US why would this matter? If the cost of production starts going up dramatically in China, then all the cheap ‘Made in China’ goods we’re used to are inevitably going to increase in price.

We just fixed a slew of bugs including a particularly irritating one that affected account creation and changing your account information. Sorry about that. If you notice any more bugs, please help us out and report them to . Thanks for notifying us of this issue. (Asparagirl, Jess)