Revolutionary Financial Networks Not Revolutionary
from the credit-check dept
The rise of sites like Craigslist and eBay have shown that commerce can happen without the middlemen and brokers that add costs to a transaction. Naturally, some are tempted to apply the same theory to financial services, not just with payments (like PayPal), but to borrowing and lending. One new project, Ripple, has the ambitious goal of creating a new monetary system out of IOUs. As an example they give, you could transfer the $10 a friend owes you to a third party in exchange for some service, like a haircut. The idea is that if enough people join, it becomes like a social network where people can tally and transfer personal debts. The problem is that it's hard enough to collect an IOU when it's your roommate or a friend -- what incentive does the haircutter have to take on someone else's risk? Because loan enforcement may prove difficult, it also creates a market in collections that could turn ugly. Imagine if one individual owes several people $50. A third party may step in, offer to buy up all the loans at $0.70 on the dollar, and then "drop in" on the original debtor, aggressively trying to recover the money. This may sound far-fetched, but a system like this will already appeal to people who for whatever reason, are on the margins of the traditional financial system. Ultimately, the problem with this system, or any other one that tries to apply peer-to-peer networking to finance, is that they're re-inventing the wheel; the financial system is already based on individuals and institutions lending to each other, with banks offering services like enforcement and monitoring. If anything, the need to specify to whom the loan is going seems like a major inefficiency, and will relegate these sites only to small niches.
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Checks
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IOU: one goat
I don't see any back to basics here, or anything that's all that innovative.. They're just placing another layer of abstraction on top of a money economy.
What is the common denominator here? Money. If the haircut is worth $10, then really I have a bank account with $10 in it.. Except now we've convoluted it with this 'goodwill' IOU system.
Damn it people, just pay your bills. I'd much prefer an economy where the sick concept of paying interest on money lending is eradicated.
Joe's example of collections seems the only useful consequence of this system
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what about prosper..
http://www.prosper.com/public/welcome/default.aspx
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Oh right
"Hey, my buddy who I haven't heard from in six weeks--and I'm afraid he's left town--owes me 200 bucks that I loaned him so he could pay off his psycho ex-girlfriend. Can I give you his IOU and take your advertised "used-but-perfectly-functional" DVD-RW machine off your hands? I mean, you're asking $175 and my buddy owes me $200. Sounds like you're gonna make out pretty well in the deal... What's your address so I can swing by and check out your DVD-RW (to make sure it works right.) I mean, one can't be too cautious can one, when buying electronics from total strangers on Craigslist?"
I'm selling an item on Craigslist and I actually had a guy ask me during the email communication about the item: "You take a check?"
I replied, after answering his proper item-realted questions, with:
I take cash, actually.
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Re: IOU: one goat by Rikko
Why is this sick? There's a cost to the lender for giving the borrower money. Why shouldn't the lender get something for it?
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Interesting
which means checks and credit cards are technically illegal
and have been forever!
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People forget...
Other currencies, such as those backed by a limited reserve of gold or silver (like the liberty dollar) are also inflation proof, because the exchange value for goods in a limited reserve does not change. The value of gold in terms of the US dollars does change, but that reflects the value of US dollars, not the value of the gold itself.
It all comes down to how much you think what you want to sell is worth.
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