no third solution

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SEC Outlaws Interpersonal Loans

November 27th, 2008

Citing a TechCrunch article indicating that the SEC is shutting down Prosper.com, Jason Kolb comments on The Money Mafia known as the Federal Reserve system. There is some merit to what he has to say, but I think he overlooks the most important points. I wasn’t able to leave a comment at Jason’s post for some reason, but I was going to respond here anyways.

To review, Prosper.com is a peer-to-peer lending network which matches people who need money, with people who have money to lend. According to the TechCrunch article, the SEC claims that Prosper was selling investments, or could reasonably be construed by the layperson as selling investments, and therefore needs to cease and desist until registering with the SEC and falling under its regulatory umbrella. Prosper, as you might imagine, has maintained all along that it is not selling investments, it’s merely facilitating the free exchange of inter-personal loans.

Kolb comments,

The key here is that Prosper itself was not lending or borrowing, it was simply matching up willing borrowers and willing borrowers. It also provided additional services such as collection and tracking.

As far as I’m aware, this is all true. They charged a nominal fee for this service, just like eBay charges a nominal listing fee for its service: matching buyers and sellers. On eBay, the goods for sale are generally tangible. On Prosper, the “goods” for sale are interpersonal loans. The people lending money through prosper are not purchasing a security, an “investment” from Prosper.

Kolb is correct when he says, in regards to this case, “The SEC is simply acting as the enforcement arm of our private national banking cartel (emphasis in original)”, however, I think he misunderstands the nature of a central banking cartel, or at the very least, grossly overestimates the ability of individuals beholden to a banking cartel, to extricate themselves from its stranglehold by using its funny money.

The real fact is, if private citizens were allowed to freely lend to one another, the private banking cartel that is our central banking system would lose the little control they have over the economy.

Wrong. Prosper.com attempts to work within the current, broken monetary system.

As long as people are coerced into using FRNs, which can be inflated at will, the banking cartel to which he alludes maintains enough control of the monetary system to make sites like Prosper essentially a novelty. The fact of the matter is that the individual, lending on prosper, is simply not permitted to create money out of thin air in the same manner as the member banks of the Federal Reserve system. The banks’ legal privilege is the ability to create money from nothing, or,

The permission to loan into existence, money representing wealth which has not yet been created. In doing so, they are effectively mortgaging the borrowers’ productivity, while risking nothing of their own.

The individuals lending on Prosper are not allowed, by any stretch of the imagination, to create pure debt obligations without forsaking anything of their own, they issue real loans, not fiat credit, which is backed by real assets accrued by previous productivity.

Gresham’s Law states that bad money drives out good money. Federal Reserve Notes are the bad money, and they are backed by the full force and violence of the government. Ultimately, the only thing that can destroy the banking cartel’s monetary monopoly is sound money.

Maybe this is a minor issue, but I think he’s overlooked the biggest part of the problem, and in doing so, he’s saying that the emperor’s clothes are out-of-style. I’m saying that the emperor has no clothes.

Kolb makes his end-goal pretty clear, saying that he wants to create “BitTorrent, for the people,” and that such a system needs to be “Off the radar, empowered to take the risk and the profit that they decide they should take.” If he is not already familiar with agorist/counter-economic philosophies, then it’s certainly something he should investigate. His goals, and the system he wants to assist in implementing, seem to be perfectly aligned with agorist ideas of economic independence, eliminating reliance on the monopoly of the State, and personal liberties..

I’m not trying to slam him for misunderstanding the nature of just how badly broken the system really is. Technical issues of economics aside, Kolb is right: people need to be free. People need to be free to lend to one another, borrow from one another, trade with one another. They need to be allowed to fulfill their own goals, without being robbed blind by a government, or a banking cartel, or both. People need to be free.

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no third solution

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