A lot of pundits lament the fact that people don’t pay attention to the financial news. This a sometimes a problem because your personal finances are usually connected to big picture economic trends. In our case, we’ve had our own personal subprime meltdown.
Like many personal finance aficionados, we’ve been lending money on prosper.com. When we initially started lending, we targeted high risk borrowers. About a month ago, we started to see that many of these people were several months behind on their payments and we changed our lending policy. Well, now it turns out that we didn’t shift course quickly enough. Five of our loans are currently delinquent and a couple more are two months late. All in all we’ve lost about $300.
Our situation is small microcosm of what’s going on in the larger economy. For us, the $300 lesson that people with bad credit don’t pay their bills was cheap, but the national mortgage industry has poured billions into the subprime market. Overall the consequences of the sub-prime meltdown have been far reaching. Mortgage lending is down, so are all the business that profited from the housing boom, like construction, advertising, retail, etc. For the nation, it has been an expensive lesson that when prudent finances become secondary to irrational decisions, the results can be messy.
In the case of us DINKs we still believe that prosper is a good way to build wealth, but it will be a long time before we lend to someone with high risk credit risk again.
Best,
James
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