Jonathan Freedland simply doesn\’t get what it is that banks do. Let\’s replace those nasty banks with Zopa and other peer to peer lending sites.
What if our man in Dundee can\’t or won\’t pay back the loan? Zopa\’s answer is that would-be borrowers undergo the same credit checks as imposed by any bank.
Ah, you see, the bank, as the intermediary, takes the risk of the default. That\’s why they take so much of the interest. Zopa doesn\’t take that risk thus doesn\’t take so much of the interest.
But there\’s something much more important:
The company can\’t envisage peer-to-peer mortgages, for example: how many individual lenders would want to tie up their money for 25 years?
One definition of a bank (first seen at Brad DeLong\’s) is someone who borrows short and lends long. Any system that isn\’t doing that is not going to be able to replace them.
Peer to peer lending is just fine, a useful addition to the marketplace. But it just ain\’t gonna replace the people who move savings and loans inter-temporally.