(I was going to make this reply in another thread, but I think it fits better in this one.)
You guys toss around all these silly numbers about X% of loans have defaulted, but that's an incredibly dopey (in its ability to mislead) metric to look at, given that every payment is money.
How about the fact that 23.19% of every dollar lent on Prosper has disappeared as a net charge-off -- that's $44.4 million dollars. Is that a "silly number" too? Add in another 2.02% that is 1+ months late, and more than 1 out of every 4 dollars ever lent is gone.
Bank of America CC chargeoffs were at ~15% (and trending higher) the last time I looked, which was
about eight months ago, CitiGroup was ~11% (also trending higher), and delinquency rates, industry-
wide (similar to the 1+ months late you refer to), were running at around 6%, at the end of the year.
Moody's is projecting that these trends will continue (read: get worse), all the way into middle 2010.
(I notice that you watch unemployment figures closely, do you think those might be a macro-signal?)
The banks have professional analysts and monstrously tweaked credit decisioning algorithms to make
their lending decisions for them (not individuals), and were doing only slightly better than us "people",
who, relatively, started into the lending business yesterday (and in a RECESSION), and, also, lenders
here, in many cases, chased after the high rates and bid (starry eyed), on loans of low credit quality,
which were clearly marked as such, but which are now not allowed to even list since lenders couldn't
control themselves (that sound familiar, macro?) and would often ignore risk, in pursuit of high return.
I know I certainly did, at times - I clearly remember lending $80 to "evildick66" an autofund at 29%...
So, I guess the takeaway is that "greed", as a contagion, was not limited to banks and/or wall street,
and that has impacted the bottom lines found at many such firms, just as it has w/P2P lender returns,
which is why you get things like new regulations for banks, and MUCH tighter credit qualifications @ P.
Though if you want to play the "big-sounding-bad-number" game, then the scale which "professionals"
have been working at, lately, offers "different" dollar-denominated loss numbers, since 11% of citibank
revolvings will lead you not with a puny sounding "$44.4 million" but with numbers more like "$X Billion".
(The same logic applies if you look at it in terms of "number of loans" that banks will be charging off...)
(If you assume that some % of borrowers will default, which is truth, the # of loans charged off rises.)
-t
