Wednesday, November 28, 2007

The Bank's Monopoly Diminishes

The days where banks hold a monopoly on The People's ability to borrow money are now gone. The People are taking it upon themselves to step into the realm of lending and borrowing money.

Naturally, technology is helping to see this endeavor gain steam, through a website called . It's breaking the bank's power that it has over us, which is great news! If there's one thing that should not exist in a free country, it's having an institution yield the kind of leverage and control over The People that the bank does today.

The way this new, people-powered system works is like this: Borrowers log onto the network and post how much money they are looking for, the purpose of the loan, and at what interest rate they are looking for.

The reasons range anywhere from money to get married, to money needed in order to start a new business, and everything in-between. Posts are usually accompanied by photographs and personal narratives that explain the reason for the loan. A grade is assigned to each borrower based on the person's credit score so that investors know their level of risk.

Lenders (investors) then log on and bid on how much they can lend and at what interest rate. It's that simple.

Many of the lenders are indicating that the investments they have made are returning more profits than other forms of investment. Only 10% of all investments are failing to be returned. Considering how often we could see a lack of payback from borrowers, I think 10% is pretty freakin' good!

I see this as a huge opportunity for The People. It's a win-win situation all around (except for banks, ha-ha!):

1. We increase our freedom by increasing choices, by breaking the control and overbearing monopoly that the bank has had for so long. The People regain more control over their affairs.

2. We increase our ability to create wealth, with a new and different opportunity to invest, which also creates wealth for those who borrow. Borrowers can find better rates than banks traditionally offer and investors can get better returns than from a savings account at a bank.

3. We increase our level of humanitarianism. According to Prosper, "The opportunities for social connection appeal to users, said Prosper co-founder and CEO Chris Larsen...."When you’re dealing with people, it’s 'I want to do well but I also want to feel good about how I'm doing well,'" said Larsen.

Banks are obviously not as humanitarian and can be cold, less forgiving, and rarely appeal to human need. Investors who fill that need step up the level of peer-to-peer connection in society. Investing directly in a person, as opposed to a large, corporate conglomerate, feels more human.

4. I can see the potential for this to go international, whether by Prosper themselves or by other companies similar to Prosper starting up in other countries.

It's those reasons, above, that display an exciting example of how:

It's a Free Country!

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