Crowdfunding Securitisation Scares On Wall Street - True Or False?


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If a thing is worth saying once... well, it's probably worth saying again.

The Bloomberg media empire has run two stories in a fortnight on the peer-to-peer (P2P) sub-sector of crowdfunding in the United States.

It's not so much commenting on the business of US P2P crowdfunding as its valuation, and specifically the machinations of "Wall Street" (aka the financial services professionals in the US, many of them in California – "Wall Street" is a metaphysical, not a geographical concept, just as "Fleet Street" means mainstream UK media, not newspapers in EC4).

The first Bloomberg piece took a basic line that individuals and investment funds alike were greedy for the business of P2P crowdfunding. "Investors are snapping up the loans directly, while the banks are bundling them into securities," ran the article – which went on to draw a cautionary parallel between the bundling of P2P loans into securities and the horror of Collateralised Mortgage Obligations leading to the crash of 2008. Here's a version of the tale, as picked up and published by US trade magazine, Financial Advisor.

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The second Bloomberg article, boosted one suspects by the reaction to its predecessor, focuses pretty much exclusively on the possibility of a bubble in the US P2P market, acerbated by Wall Street bankers running P2P asset books through its "securitization machine".

This piece was widely picked up, and considered important enough for it to be reproduced verbatim in The Sydney Morning Herald, one of Australia's finest newspapers.

At Money&Co. we certainly take heed to those who have a dark view of over-aggressive valuations of the P2P sector (see this CityA.M. news story, and comments from our director of communications – who was expressing a personal view). We are keen to warn against any sort of hype that might lead to a repeat of the credit crunch of 2008, or the tech-stock bubble and crash of 200 (both, one might argue, driven to a considerable extent by investment bankers' "over-enthusiasm").

That said, Bloomberg is in the business of selling its wares, of getting its stories "out there". Some might say these tales are "scary" – and that's why they sell, even to institutions as august as The Sydney Morning Herald.

There's a lot to be written about the similarities and differences between the older (yet in many ways less mature) US P2P crowdfunding market as compared to the UK P2P market. The attitude to and assessment of risk, the regulatory framework, the mix of what constitutes a "crowd" (both markets are a mix of the individual and the institutional investor – but the US is fast becoming institution-dominated "marketplace lending" while the UK for the moment has less of an institutional bias) are some of the key points for discussion.

We'll opine on these issues in a later blog. For now, we thought we'd bring your attention to these news stories. Like all risks – and the risks are real – we need to be mindful of them. Understanding just how big or small the risks really are is an important part of that mindfulness.



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Disclaimer: Money&Co.™ is the trading name of Denmark Square Limited, Company Number 08561817, registered in England & Wales, authorised and regulated by the Financial Conduct Authority (FCA). The company is identified on the Financial Services Register under Reference Number 727325. The registered office is 58 Glentham Road, Barnes, London, SW13 9JJ where the register of Directors may be inspected. Denmark Square Limited (ISA manager reference number Z1932) manages the Money&Co. Innovative Finance ISA.