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I didn't realize the Portfolio Plans were meant to pump n dump...
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I mentioned this on the old forums, but I think that successful implementation of PPs does amount to "pump n dump", where pump n dump is characterized by getting as many listings as possible to 100%. I mentioned that this would have nice implications for Prosper, considering they get money for originations.
Consider a world where, for clarity, we have one just one slice of the pie with 3 loans for $5k each. There is $12,000 in the *total* PP pool for this slice of the pie, and the PP slice is bidding at 21%. The three loans are at 22, 25, and 28%. What happens when the PP daemon comes around to bid?
* The first $5,000 of the pool bids on the 28%, obviously.
* The next $50 comes up. Where does it go? 27.99% > 25%, so it bids on the filled loan, displacing $50 which was already bid on it.
* Continue above step until that loan is bid to below 25%.
* The $5,000 fills the 25% loan to maximum.
* The next $50 comes up. There are two loans at a fraction below 25%, and one loan at 22%. It jumps on one of the higher loans, displacing $50.
* Money spills across both loans until they are reduced to below 22%.
* The final $2000 attempts to fill the 22% loan.
Thus, we see here that portfolio plans maximize loan origination for Prosper -- instead of having lenders inefficiently allocate money across these three loans, possibly filling the first two to $4k and $3k and leaving $5k unspent because of signaling problems, Prosper notches two more originations. They also tend to bid the bejesus out of loans which are in slices that the PPs (and those lenders using PP -- remember, there are four options) prefer. This makes the loan rates more predictable (good for borrowers, perhaps less good for lenders since you can no longer exploit irrational prejudices like "Ugly picture = no bids = high interest rate for a clean C") and results in more originations, which is good for everyone. Well, OK, maybe some lemmders are going to need to unlearn "100% funded = 100% safe"!
I don't think this mechanic is dishonest (like the P&Ds of yore were), but I also don't think it is intentional. Mark my words, some engineer brought this up at a meeting and he will be getting a major bonus on his next evaluation for this idea.
