Saturday, August 25, 2007

WSJ: Become a loan shark

Jonathan Last wrote a humorous article about Prosper, Need a Loan? Usury for Beginners, for the Wall Street Journal which details his own experience becoming a Prosper lender. Not only does he become a lender, he becomes a loan shark. Here's an excerpt:

"Yes, we all have lofty goals, like helping the infirm, reaching out to shut-ins or starting a catering service. But what we've always wanted to be may seem, to some, a bit less commendable. For instance, I've always wanted to be a loan shark. There's something luridly poetic about outlaw lending: Getting the juice ticking at 30% on some hard-luck mope; making profits off of the backs of the union guy who lost it all at the race track or the stock broker with the expensive drug habit; sending minions like "Bobby Bats" out to do collections. It's like being a banker, only cooler.

Thanks to, my dream has come true, sort of."

So how does he do?

"In the end, I purchased three loans, all of which went to the type of high-risk borrowers that normally resort to getting in hock to degenerates like me. The first was to someone named "Shannon" who said he (or she) was starting a small-town newspaper. The second was to a Yahoo! employee who runs a side business selling refurbished electronics equipment.
The third was to a down-on-her-luck single mom who had no assets and needed cash to get out of credit card debt. She has an ex-husband who did her wrong, and the picture of her 5-year-old son was awfully cute. This cold-blooded loan-sharking racket is harder than it looks. I could imagine myself being tough on the first two borrowers because, deep down, I thought that there was a chance that they could make good. But the single mom seemed hopeless. I gave her the loan anyway. All told, the average interest rate I was getting on the loans was 19.84%. Not usurious, perhaps, but high enough to make me feel pleasantly evil.

...My career as a bad-boy money-lender was deflated even further when I received my first payments, which totaled $4.60 ($4.55, once Prosper took their cut). All three borrowers made their first collection. I didn't even get to have anyone roughed up. Not that I could have afforded it -- even Bobby Bats must make more than $5 an hour."

Oddly, the WSJ article does not have a date but it appears to have been published almost a year ago. Google News shows it was published six hours ago (so maybe it is republished) and it's new to me so I thought I would share it. The author, Jonathan Last, who goes by the username LoanBruce still doesn't have an excuse to rough up any borrowers - his three loans are still current.

What is a loan shark really? According to the very authoritative Wikipedia a loan shark "is a person or body that offers illegal unsecured loans at high interest rates to individuals, often backed by blackmail or threats of violence. They provide credit to those who are not willing or are unable to obtain it from more respectable sources, usually because interest rates commensurate with the perceived risk are illegal." Well, these loans certainly aren't illegal, so I guess LoanBruce isn't quite a loan shark.

Luckily for LoanBruce, all his high risk loans are still current. I thought it might be fun to take a look at the three loans that are making LoanBruce nearly 20%.

$4,999 at 19.75% for "A Well Respected Publisher"

"My name is Shannon and this is a relist for a personal/working capital loan for my new publishing business. For over 10 years, I've been the creative mind at a newspaper business in Dallas/Ft. Worth, Texas and have now moved on to become a publisher myself. I'll be continuing a very successful classified advertising/newspaper business under a new name which has been respected by the community and is also very charitable to numerous national organizations. I have a great working crew (commissioned), equipment (PCs, phones, Macs, office furniture), and retained many advertising clients who are ready to do business in 2007."

$15,000 at 16.86% to "Consolidate Profitable Business Running on Credit Cards"

"My name is Christopher...I own a small business selling refurbished electronics & cell phones...We have recently experienced an enormous growth spurt in quarter over quarter sales and expect the trend to continue in 2007."

"You can see more about this business by visiting If you research my sales for December 2006 we had over $60k in eBay sales and $10k in outside eBay sales. We expect January to be approximately $85-$90k gross revenue @ 35% margin. I carry a 100% feedback rating on eBay which should help show I am a serious and trust worthy business. Show me ANY other company that can transact over 5000 transactions and receive NO negative responses to their service and I will show you an AA credit rating. I turn over inventory very quick and need keep larger inventories. We have the infrastructure to scale but not enough cash to float the inventory costs. I currently have $40k in cash and would like to borrow another $15k to expand inventory for three to six months."

$1,500 at 26% for "A New Year"

"I am a 45 year old single mother with a 5 year old son. I have worked in administrative services for the last ten years at the same company."

"I got married in 2001. My husband had terrible credit history, so when he wanted to start his own limo business, we put the loan for his Cadillac under my name. I got pregnant; we moved to a new apartment with more space. I foolishly picked a place that was way out of our price range. My husband's limo business was doing well, so although things were tight, we were still managing to stay on top. After 9/11, the travel business came to a halt and we started falling behind on car payments. My son was born in September, and when I had to go back to work, we had to put my son in daycare ($1000+ a month). In 2003, I filed for bankruptcy. I still had the Cadillac loan in my name, I had tried to consolidate my credit card bills, which was a huge mistake, and my ex wasn't paying child support...I am still having a hard time paying my bills...The reason I am looking for this loan is because I want to try to get ahead a bit, or at least break-even."

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